There must be something in the air that makes the end of 2018 restructuring time. ABB has announced it is “shaping a leader focused in digital industries.” In other words, it is focusing its portfolio of businesses on digital industries through divestment of Power Grids business to Hitachi.
Interesting that ABB went through an acquisition cycle, replaced the CEO, and has been divesting (mostly) since. The outlier was the recent acquisition of B+R Automation—but that one fleshes out the factory automation (discrete) portfolio making it more competitive with Siemens and Schneider Electric. This divestment should give the company better investment strategies to continue to develop the core (performing) businesses.
Following are a few bullet point highlights and statements by the CEO and the Board Chair.
- Enterprise Value of $11 billion for 100% of Power Grids, equivalent to an EV/op. EBITA multiple of 11.2×1.
- Crystallizing value from the transformation of Power Grids including doubling operational EBITA margin since 20142
- ABB initially to retain 19.9 percent in the equity of carved-out Power Grids to ensure transition; pre-defined exit option on 19.9 percent equity at fair market value with floor price at 90 percent of agreed Enterprise Value, exercisable by ABB three years after closing
- Closing expected by first half of 2023
- ABB intends to return 100% of the estimated net cash proceeds of $7.6-7.8 billion from the 80.1% sale to shareholders in an expeditious and efficient manner through share buyback or similar mechanism
Simplification of business model and structure
- Discontinuation of legacy matrix structure
- Businesses will run all customer-facing activities as well as business functions and territories, fostering ABB’s entrepreneurial business culture
- Businesses to be strengthened by transfer of experienced country management resources
- Existing country and regional structures including regional Executive Committee roles to be discontinued after closing of the transaction
- Corporate activities to be focused on Group strategy, portfolio and performance management, capital allocation, core technologies and ABB Ability platform
Shape four leading businesses aligned with customer patterns
All businesses global #1 or #2 in attractive growth markets:
- Electrification led by Tarak Mehta
- Industrial Automation led by Peter Terwiesch
- Robotics & Discrete Automation, a unique combination of B&R and Robotics, led by Sami Atiya
- Motion, combining ABB’s market-leading offering in motors and drives, led by Morten Wierod, appointed to Executive Committee as of April 1, 2019
ABB Ability tailored digital solutions will drive customer value in each business whilst capturing synergies through common platform.
Actions position ABB with a leadership role in digital solutions, and evolving technologies such as artificial intelligence.Financial impact of new ABB
“ABB has been driving industrial change for more than a century as a global pioneering technology leader. As a result of our Next Level strategy, all of our businesses are today number 1 or 2 in their respective markets. To support our customers in a world of unprecedented technological change and digitalization, 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.
“Power Grids will strengthen Hitachi as global leader in energy infrastructure and Hitachi will strengthen Power Grids’ position as a global leader in power grids. With this transaction, we are realizing the value we have built through the transformation of Power Grids over the last four years. Our shareholders will directly benefit through the return of the proceeds of the divestment. Building on our existing partnership announced in 2014, the initial joint venture will provide continuity for customers and our global team.”
“To compete in today’s fast-changing world, we fully empower our businesses, through the discontinuation of the legacy matrix structure ensuring zero-distance to customers and increasing our agility in decision-making. Our four newly shaped businesses, each a global leader, will be well aligned to the way our customers operate and focus stronger on emerging technologies such as artificial intelligence. The continued simplification of our business model and structure will be a catalyst for growth and efficiency in our businesses. Our businesses will be further supported through the transfer of experienced resources from today’s country organizations.”
“All of this will only be possible due to the commitment of our global team who has made ABB what it is today. Our innovation power together with our inclusive culture will continue to be a differentiating strength of our company. We will live enhanced customer focus, provide attractive opportunities for our employees and deliver value for shareholders.”
Peter Voser, Chairman of ABB, said, “Today’s announcement marks the beginning of a new chapter in ABB’s history. Building on our technology and global talented employee base we will further strengthen our focus in digital industries, delivering competitive returns for shareholders, including our committed dividend policy. Over the past five years the deliberate execution of ABB’s strategy laid the foundation for our businesses to compete in the fast changing digital industries and deliver profitable growth.”
“We were very clear in the past that the actions required for the turnaround of Power Grids could be best achieved within ABB. Following completion of this step, we undertook a review of the Power Grids business and decided to secure the best home for the future development of the business through the combination with Hitachi. The new ABB will be positioned to write the future as a customer focused technology leader in digital industries.”