Hitachi Ltd. and ABB on December 17 announced that Hitachi will acquire 80.1% of ABB’s Power Grids unit in an $11 billion deal.
Reports of the possible acquisition surfaced December 16, with several media outlets including POWER discussing the agreement, citing sources familiar with the deal who asked not to be identified.
Hitachi plans to close the purchase in the first half of 2020, making Power Grids a consolidated subsidiary. Hitachi has entered into a purchase option to acquire the remaining 19.9% stake in Power Grids and make the business a wholly-owned subsidiary.
ABB’s Power Grids unit makes power transformers, long-distance transmission systems for power, and also designs energy storage units. It accounts for 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. Cevian, today the company’s second-largest shareholder, has said ABB’s operations were too complex and has argued the company’s stock price would be helped by ABB spinning off some of its units.
Hitachi in a press release Monday said the acquisition will enable it to “offer innovative energy solutions globally by combining ABB’s world-class grids offering including advanced digital grid solutions with Hitachi’s digital technology. In addition, Hitachi aims to build an energy platform that connects various fields such as mobility, life and industry. Hitachi will expand provision of the platform to, and collaborative creation using it with ABB’s broad range of customers to promote more efficient use of electricity throughout society and empower and grow the Social Innovation Business.”
Grid Solutions and Digital Technology
Hitachi in its statement said it wants to build “an energy platform to realize more efficient use of electricity throughout society, Hitachi aims at expanding its Social Innovation Business not only in the Power and Energy area, but also in areas such as mobility (railways and electric vehicles etc.), life (smart-city and buildings etc.) and industry (manufacturing facilities and plants etc.), and at providing a wide range of customers with innovative energy solutions.”
Said Hitachi CEO Toshiaki Higashihara: “Today’s agreement between ABB and Hitachi is a significant turning point in the global power and energy markets at a time when digital technology is fundamentally changing our society and the pattern of energy demand and supply is diversifying. Hitachi will combine ABB’s strengths in the power grids business with our digital technology to build an energy platform that contributes to innovating the energy business. This creates further innovation for business fields such as life and industry and helps us address society’s issues and improve quality of life.”
ABB’s Power Grids unit operates four segments, including Grid Automation, which provides protection control system and remote monitoring control systems to realize grid network stabilization, and management systems for supply and demand electricity market for trading electricity. A second segment is Grid Integration, which includes digital substation, system integration, and service solutions, high-voltage direct current (HVDC) systems, and power semiconductors. Other segments include High Voltage Products, which includes gas-insulated switchgear (GIS), and Transformers, which includes power, distribution, and transaction transformers for railways.
ABB on Monday said its HVDC market is “expanding with the increased application of renewable energy. ABB has undertaken around 120 HVDC projects representing a total installed capacity of more than 130,000 megawatts, which accounts for about half of the global installed base and possesses the most advanced technologies being able to design and manufacture most key products in-house.” The company in a press release said the Power Grids’ division revenues in 2017 totaled $10 billion. It said the unit has about “100 manufacturing bases, approximately 200 sales locations, and around 36,000 employees globally.”
ABB Chief Executive Officer (CEO) Ulrich Spiesshofer said, “The combination of ABB’s power grids business with Hitachi positions power grids business for a successful long-term future as a globally leading infrastructure business. We crystallize the value we have built through the transformation of the last years and focus new ABB on digital industries. ABB’s power grids business will strengthen Hitachi as global leader in energy infrastructure and Hitachi will strengthen the position of ABB’s power grids business as a global leader. 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.”
Unit’s Value Rises in 2018
Spiesshofer in 2016 told shareholders he would not jettison the Power Grids 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 has made other significant deals in recent years; in 2017, the company 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.
Higashihara has been divesting some of Hitachi’s assets as part of a restructuring, though today’s acquisition aligns with his statement in June, when he said he wanted to position Hitachi as one of the world’s top grid companies as it moves away from its nuclear plant business. Reports on Dec. 16 said Hitachi is likely to suspend a nuclear plant construction project in the UK because it is having problems finding investors to finance the project, which involves building two reactors on the island of Anglesey in Wales. Investors are leery of rising construction costs.
—Darrell Proctor is a POWER associate editor (@DarrellProctor1, @POWERmagazine).