ABB Nears Sale of Power Grids Division to Hitachi in $11 Billion Deal

Hitachi Ltd. and ABB could announce an $11 billion deal as soon as December 17 in which Hitachi will acquire 80% of ABB's power grids unit.

Reports of the possible deal surfaced December 16, with Bloomberg and others citing sources familiar with the agreement who asked not to be identified. Neither ABB nor Hitachi commented Sunday on the deal.

The power grids unit, which makes power transformers, long-distance transmission systems for power, and also designs energy storage units, is about a quarter of ABB's current business. A divestment would likely lead the company to focus more on automation and robotics, and also could satisfy the demands of Cevian Capital AB, which became one of ABB's largest shareholders more than three years ago.

Unit's Value Rises in 2018

ABB Chief Executive Officer (CEO) Ulrich Spiesshofer in 2016 told shareholders he would not jettison the division, saying it was undervalued. This year, however, the unit's value rose-generating $7.1 billion in revenue through the third quarter, with a 9.8% profit margin-and reports in October said ABB would work with advisers to consider its options for the business.

ABB in 2017 acquired GE Industrial Solutions, the electrification business of GE, for $2.6 billion.

Hitachi and ABB last week said they were in discussions about how to move forward with an existing power-grid partnership that began in 2014. Neither company provided details of that agreement.

Hitachi CEO Toshiaki Higashihara has been divesting some of his company's assets as part of a restructuring. Higashihara in June of this year said he wanted to position Hitachi as one of the world's top grid companies as it moves away from its nuclear plant business.

Hitachi May Suspend UK Nuclear Project

Other reports Sunday said Hitachi is likely to suspend a nuclear plant construction project in the UK. The Japan News, a breaking news division of the Yomiuri Shimbun newspaper, said Hitachi is having problems finding investors to finance the project, which involves building two reactors on the island of Anglesey in Wales, due to concerns about rising construction costs. The outlet said Hitachi could make a final decision on the project early next year.

The project would be led by Horizon Nuclear Power, a British subsidiary of Hitachi that the company acquired in 2012. The Anglesey project has an estimated cost of more than 3 trillion (3 trillion yen, or about $26.4 billion). The British government earlier pledged to arrange more than 2 trillion in loans, with the remaining cost of about 900 billion to be divided among Hitachi, the British government and business interests, and Japanese power companies and banks, including Japan Atomic Power, Japan Bank for International Cooperation, and the Development Bank of Japan, among others.

The Nikkei Asian Review on Sunday reported that Tokyo Electric Power Co. is not inclined to help fund the nuclear plant. The news group said Chubu Electric Power and other Japanese power companies also may not help finance the project. The report also said some Hitachi executives oppose the project due to its financial risk.

Bloomberg reported Sunday that Hitachi's shares have fallen 26% this year, giving the company a valuation of about $28 billion. ABB's stock has dropped 25% this year; its market capitalization is about $43 billion.

-Darrell Proctor is a POWER associate editor (@DarrellProctor1, @POWERmagazine).

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