(Reuters) – ABB <ABBN.S> is in talks with Japan’s Hitachi <6501.T> about the Swiss engineering group’s <ABBN.S> power grid business, which it may sell to focus on more profitable divisions.
ABB has been in talks with Hitachi, Mitsubishi Electric Corp <6503.T> and State Grid of China [STGRD.UL] 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 re-define the existing strategic power grid partnership between the two companies announced in December 2014,” the Swiss company said in a statement.
ABB, which also makes industrial robots, wants to offload its least profitable division, allowing it to focus on areas such as automation.
“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 were up 2.5 percent by 1200 GMT.
One source familiar with the situation valued the power grid business — in which sources have said ABB could keep a stake — at between $10 billion and $12 billion (9.57 billion pounds).
Japan’s Nikkei newspaper reported that the companies were nearing a deal in which Hitachi would pay between 600 billion and 800 billion yen ($5.29-7.05 billion) for an initial 50 percent stake in the business.
Hitachi’s board confirmed a plan to go ahead with the deal, which would be the Japanese industrial conglomerate’s largest-ever acquisition, the Nikkei reported https://asia.nikkei.com/Business/Business-Deals/Hitachi-nears-deal-worth-up-to-7bn-for-ABB-s-power-grid-business.
A spokesman for Hitachi said it was not making any announcement and declined to comment further.
ABB’s power grid business employs 36,000 people and had sales of $10.4 billion last year. It had an operating profit margin of 10.0 percent in the third quarter, down 60 basis points from a year earlier.
The decision to sell it marks a U-turn for ABB Chief Executive 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 and also accelerate acquisitions in automation.
(Reporting by Tim Kelly in Tokyo, Shubham Kalia in Bengaluru and Oliver Hirt in Zurich; Editing by Himani Sarkar and Alexander Smith)