Hitachi to Acquire ABB’s Power Grids
ABB announces that Hitachi will acquire ABB’s Power Grids business, an expansion of its existing partnership with Hitachi. The agreed price represents a transaction Enterprise Value of $11 billion for 100 percent of Power Grids, the equivalent to an EV/op. EBITA multiple of 11.2x1, before share of corporate cost. ABB will initially realize a levered consideration of ~$9.1 billion from the sale of 80.1 percent of Power Grids, including pre-sale net leverage (intercompany loan net of cash transferred), before one-time transaction and separation related costs as well as cash tax impacts.
In the fast-changing world of energy infrastructure, with a shifting customer landscape and the need for financing and increased government influence, ABB believes Hitachi is the best owner for Power Grids. As a stable and long-term committed owner, with whom ABB has developed a strong business partnership since 2014, Hitachi will further strengthen the business, providing it with access to new and growing markets as well as financing. Hitachi will accelerate Power Grids to the next stage of its development, building on the solid foundation achieved under ABB’s previous ownership.
Since 2014, Power Grids has been significantly improved under the ownership of ABB. The latest results (Q3 2018) are at the target margin corridor, having more than doubled margins, with positive third party base order development recorded for the last six consecutive quarters.
ABB will initially retain a 19.9 percent equity stake in the joint venture, allowing a seamless transition. The transaction agreement includes a pre-defined option for ABB to exit the retained 19.9 percent share, exercisable three years after closing, at fair market value with floor price at 90 percent of agreed Enterprise Value. Hitachi holds a call option over the remaining 19.9 percent share at fair market value with floor price at 100 percent of agreed Enterprise Value.
The joint venture will be headquartered in Switzerland, with Hitachi retaining the management team to ensure business continuity.
Starting in Q4 2018 until closing, ABB will report Power Grids in discontinued operations. As a consequence, ABB will record $350-400 million of stranded and other carve-out related costs, which are currently predominately recorded as part of the Power Grids cost base. These will now be recognized in ABB’s corporate & other operational EBITA. ABB expects to eliminate the vast majority of these costs by deal closing by transferring them back to Power Grids. ABB expects approximately $200 million of charges in Q4 2018 related predominantly to the legacy EPC substation business reported in non-core corporate & other operational EBITA.
ABB expects to incur one-time non-operational transaction and separation related costs of $500-600 million. ABB anticipates $800-900 million related cash tax impact. The completion of the transaction is expected by first half of 2020, subject to regulatory approvals and fulfillment of closing conditions. ABB intends to return 100 percent of the estimated net cash proceeds of $7.6-7.8 billion5 from the 80.1 percent sale to shareholders in an expeditious and efficient manner through share buyback or similar mechanism.
ABB Simplifies Business Model and Structure
Effective April 1, 2019, ABB will simplify its organizational structure through discontinuation of the legacy matrix structure, thereby empowering its four leading businesses to serve customers even better, while further sharpening responsibilities and increasing efficiency.
ABB’s new organization will provide each business with full operational ownership of products, functions, R&D and territories. The businesses will be the single interface to customers, maximizing proximity and speed.
The corporate center will be further streamlined. It will set the long-term vision and strategy for the group, guided by ABB’s values. It will drive capital allocation, portfolio and performance management, core technologies ABB Ability, ABB’s brand and investment in people. As a key building block of the simplification, existing country and regional structures including regional Executive Committee roles will be discontinued after the closing of the transaction. Existing resources from country level will strengthen the new businesses. ABB expects a total of $500 million annual run-rate cost reductions across the group over the medium-term. Approximately $500 million of related non-operational restructuring charges are expected to be taken over the coming two years.
ABB Shapes Four Leading Businesses Aligned with Customer Patterns
ABB will shape four customer-focused, entrepreneurial businesses – Electrification, Industrial Automation, Robotics & Discrete Automation and Motion. Each business will be either the global #1 or #2 player in attractive markets with strong secular drivers. ABB’s established domain know-how, world-class engineering and technology expertise, will position the four businesses well to deliver innovative products and solutions for enhanced customer value. ABB’s addressable market is growing by 3.5-4 percent per annum, adding $140 billion in size to reach $550 billion by 2025.
Based on ABB’s common digital platform ABB Ability, the businesses will provide tailored digital solutions, driving enhanced customer value. Building on emerging technologies including artificial intelligence and its strong software offering, ABB Ability will meet the increasing demand from ABB’s customers for digital solutions in the rapidly changing industrial world.