Swiss engineering company ABB agreed to sell an 80% stake in its power grids business to Hitachi. The deal values the unit at $11 billion, and $7.6 to $7.8 billion from the deal would be returned to shareholders via stock buybacks. ABB CEO Ulrich Spiesshofer said the company will focus on digital industries following the sale.
The deal makes Hitachi one of the largest power grid players in the world, though some analysts expressed concern the costs could strain the company, which suffered losses over the last decade and recently underwent its own restructuring.
ABB’s power grids business had sales of $10.4 billion last year. Under the terms of the deal, ABB will retain its 20% stake with an option to sell to Hitachi in three years.
The announcement comes after pressure from Swedish activist investor Cevian, which owns 5.34% of ABB, was calling for a sale.
ABB and Spiesshofer reportedly reviewed selling the unit two years ago before deciding to keep it.
“It was the right decision, as you can see in the valuation, to hang onto it. Over the last couple of years we have strengthened the business, we have brought it back to good profitability, to market leading profitability,” Spiesshofer said in an interview with CNBC.
Cevian co-founder Lars Forberg said the sale was the right way forward for ABB.
“Focusing ABB’s portfolio on digital industries and further simplifying the business creates a better company and a strong basis for long-term growth,” Forberg said.
“Our shareholders have been with us for many years, they have been patient and have also had perseverance with us to see through the transformation,” Spiesshofer said on a call with reporters. “Now, we let them participate in the results of their patience.”
Spiesshofer said there will be a strategy update on February 28, when the company releases its 2018 results.