Picture: REUTERS
Picture: REUTERS

Tokyo — ABB is in talks with Japan’s Hitachi about the Swiss engineering group’s power grid business, which it may sell to focus on more profitable divisions.

ABB has been in talks with Hitachi, Mitsubishi Electric Corporation and State Grid of China to sell all or part of the business, which makes power transformers and electricity substations, Reuters reported in November.

“ABB confirms that it is currently in discussions with Hitachi to expand and redefine the existing strategic power grid partnership between the two companies announced in December 2014,” the Swiss company said.

Hitachi said in a statement it was discussing the power business with ABB but nothing had been decided.

ABB, which also makes industrial robots, wants to offload its least profitable division, allowing it to focus on areas such as automation, while Hitachi is keen to expand abroad.

“There can be no certainty that any transaction will occur, or as to the timing, structure or terms of any transaction,” ABB said.

Its shares rose as much as 4.3% and were up 4% in afternoon trade.

One source familiar with the situation valued the power grid business — in which sources have said ABB could keep a stake via a joint venture — at $10bn–$12bn.

Japan’s Nikkei newspaper reported the companies were nearing a deal in which Hitachi would pay between ¥600bn and ¥800bn ($5.29bn-$7.05bn) for an initial 50% stake in the business.

One source said the main sticking points were valuation and the shares that ABB and Hitachi would take in a joint venture. ABB expected Hitachi to take a clear majority, while Hitachi would prefer a more balanced structure, the source said, adding a deal could still emerge by the December 25 Christmas holiday.

Hitachi’s board confirmed a plan to go ahead with the deal, which would be the Japanese industrial conglomerate’s largest acquisition, the Nikkei reported

ABB’s power grid business employs 36,000 people and had sales of $10.4bn in 2017 . It had an operating profit margin of 10% in the third quarter, down 60 basis points from a year earlier.

The decision to sell it marks a U-turn for ABB CEO Ulrich Spiesshofer, who decided to keep the business two years ago despite calls from some shareholders to sell.

Power Grids’ weak performance has weighed on ABB’s stock price, although the unit has fared better in the last two years.

ABB could return the sale proceeds to shareholders through a new share buyback programme and also accelerate acquisitions in automation.