Hitachi to buy ABB's grid arm for around USD 6.4 bn

Swiss power major ABB Group said Monday Japan-based Hitachi will buy an 80.1 per cent stake in its power grids arm in a deal that values its grid business at USD 11 billion (Rs 78,763 crore).

The deal is expected to complete by the first half of 2020, subject to regulatory approvals and fulfilment of closing conditions, ABB Group said in a statement.

ABB will initially retain a 19.9 per cent equity stake in the joint venture, allowing a seamless transition, the group, which operates in India through a listed arm ABB India Ltd, said.

The joint venture will be headquartered in Switzerland, with Hitachi retaining the management team, it added.

The transaction agreement includes a pre-defined option for ABB to exit the retained 19.9 per cent share, exercisable three years after closing, at fair market value with floor price at 90 per cent of agreed enterprise value, it said.

Hitachi in a release said that ABB will carve out its power grid business, for which Hitachi will buy an 80.1 per cent stake for USD 6.4 billion (704 billion yen) after deducting debt-like items from the enterprise value.

ABB's power grid unit makes and operates infrastructure including power transmission equipment and control systems in various countries.

"The agreed price represents a transaction Enterprise Value of USD 11 billion for 100 per cent of power grids, the equivalent to an EV/op. EBITA multiple of 11.2x1, before share of corporate cost," ABB said.

The Group intends to return 100 per cent of the estimated net cash proceeds of USD 7.6-7.8 billion from the 80.1 per cent sale to shareholders through a share buyback or similar mechanism.

It said 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.

ABB will record USD 350-400 million (Rs 2,506-2,864 crore) 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 recognised in ABB's corporate & other operational EBITA.

"To support our customers in a world of unprecedented technological change and digitalisation, we must focus, simplify and shape our business for leadership. Today's actions will create a new ABB, a leader focused in digital industries, said ABB CEO, Ulrich Spiesshofer in the statement.