ABB Ltd. is nearing an agreement to sell about 80 percent of its power-grids unit to Hitachi Ltd. in a deal that would value the entire business at about $11 billion, according to people familiar with the matter.
The Swiss engineering giant and the Japanese conglomerate are scheduled to announce the transaction as early as Monday, said the people, who asked not to be identified because discussions are private. A representative for ABB declined to comment while Hitachi couldn’t immediately be reached for comment outside of regular business hours.
A sale of the business -- which makes power transformers, long distance electricity-transmission systems and energy storage units -- would shrink ABB’s revenue by about a quarter and leave it more focused on robotics and automation. A divestment would also meet a longtime demand of activist investor Cevian Capital AB, which became a major ABB shareholder more than three years ago.
After conducting a strategic review, Chief Executive Officer Ulrich Spiesshofer defied the investor in 2016 by deciding to hang on to the division, arguing the business was significantly undervalued. That stance changed this year after the value of the power-grids business rebounded following productivity and margin gains, prompting ABB to work with advisers to consider options, people familiar with the matter said in October.
Change of Heart
ABB plans to sell the remaining 20 percent stake over time, the people said. The business generated $7.1 billion in revenue in the first nine months of 2018 and a profit margin of 9.8 percent.
ABB and Hitachi said last week that they were in discussions to expand and redefine an existing strategic power-grid partnership that dates to 2014, without providing details on the terms.
If completed, the acquisition would bolster Hitachi’s position in the growing power transmission and distribution sector, and help it diversify away from its nuclear plant business. Chief Executive Officer Toshiaki Higashihara has been restructuring the diversified company by spinning off some assets. Hitachi is vying to become one of the top grid companies in the world, according to a June presentation.
Taking advantage of low financing costs, Japanese companies have been scouting for growth overseas. Takeda Pharmaceutical Co. is on course to complete its $62 billion takeover of Shire Plc after shareholders cleared the deal this month. In October, KKR & Co.’s Calsonic Kansei agreed to acquire car-parts maker Magneti Marelli from Fiat Chrysler Automobiles NV in a deal valued at 6.2 billion euros ($7 billion). Daikin Industries Ltd. last month agreed to buy Austrian commercial refrigerator maker AHT Cooling Systems GmbH in a deal worth about $1 billion.
Hitachi shares have declined 26 percent this year, valuing the company at about $28 billion. ABB is down 25 percent in the same period, giving it a market capitalization of about $43 billion.