Hitachi has agreed to take an 80 per cent stake in ABB’s power grids division for ¥704bn ($6.2bn) in the Japanese group’s largest-ever overseas acquisition as it seeks to transform itself into a global industrial powerhouse.
The Swiss engineering group said it will initially retain a 19.9 per cent stake in the divested unit, which will be valued at $11bn including debt. It expects to return proceeds of $7.6bn-$7.8bn through a share buyback and other measures.
The deal will significantly expand Hitachi’s power sector business outside Japan while freeing up ABB to focus on its robotics, digital industry and automation businesses.
“Today’s actions will create a new ABB, a leader focused in digital industries,” Ulrich Spiesshofer, ABB’s chief executive, said in a statement on Monday.
Toshiaki Higashihara, Hitachi’s chief executive, has been seeking to catapult the Japanese group into the ranks of global industrial players such as General Electric and Siemens.
In 2015, the company acquired Finmeccanica’s rail assets in a €809m cash deal to expand its rail business. It also has aggressively sold less profitable divisions to focus on core growth areas.
Among these focus areas, Hitachi has said it wants to increase its grid solutions revenue by 60 per cent to ¥120bn in three years.
Hitachi said it would finance the ABB deal using cash at hand and bank loans.
Last month, the Financial Times reported the two sides had been talking privately and that negotiations were at a fairly developed stage.
Two years ago, Mr Spiesshofer resisted calls for a break-up of the Swiss group from Cevian Capital, the European activist investor that holds a 5 per cent stake.
Since then, the performance of the power grids division has improved significantly. The unit reported pre-tax operating profits of $972m last year on revenues of $10.4bn, with profit margins recently at the lower end of its 10-14 per cent target range.
Last year Cevian co-founder Lars Forberg joined the ABB board.
Proceeds from the Hitachi deal would allow Mr Spiesshofer to invest in fast growth digital industries.
The problems that have hit GE in the US have highlighted the pressures on industrial conglomerates to shed businesses and focus on fewer sectors.
