ABB has announced major changes to its business model. First, Hitachi will acquire ABB’s Power Grids business, an expansion of its existing partnership with Hitachi. The agreed price represents a transaction Enterprise Value of $11 billion for 100 percent of Power Grids, the equivalent to an EV/op. EBITA multiple of 11.2x 1 , before share of corporate cost. ABB will initially realize a levered consideration of ~$9.1 billion from the sale of 80.1 percent of Power Grids, including pre-sale net leverage (intercompany loan net of cash transferred), before one-time transaction and separation related costs as well as cash tax impacts, writes a press release sent to energynomics.ro.
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. Hitachi will accelerate Power Grids to the next stage of its development, building on the solid foundation achieved under ABB’s previous ownership.
Since 2014, Power Grids has been significantly improved under the ownership of ABB. The latest results (Q3 2018) are at the target margin corridor, having more than doubled margins, with positive third party base order development recorded for the last six consecutive quarters.
ABB will initially retain a 19.9 percent equity stake in the joint venture, allowing a seamless transition. The transaction agreement includes a pre-defined option for ABB to exit the retained 19.9 percent share, exercisable three years after closing, at fair market value with floor price at 90 percent of agreed Enterprise Value. Hitachi holds a call option over the remaining 19.9 percent share at fair market value with floor price at 100 percent of agreed Enterprise Value.
The joint venture will be headquartered in Switzerland, with Hitachi retaining the management team to ensure business continuity.
Effective April 1, 2019, ABB will simplify its organizational structure through discontinuation of the legacy matrix structure, thereby empowering its four leading businesses to serve customers even better, while further sharpening responsibilities and increasing efficiency.
ABB’s new organization will provide each business with full operational ownership of products, functions, R&D and territories. The businesses will be the single interface to customers, maximizing proximity and speed.
The corporate center will be further streamlined. It will set the long-term vision and strategy for the group, guided by ABB’s values. It will drive capital allocation, portfolio and performance management, core technologies ABB Ability™, ABB’s brand and investment in people. As a key building block of the simplification, existing country and regional structures including regional Executive Committee roles will be discontinued after the closing of the transaction. Existing resources from country level will strengthen the new businesses. ABB expects a total of $500 million annual run-rate cost reductions across the group over the medium-term. Approximately $500 million of related non-operational restructuring charges are expected to be taken over the coming two years.
ABB will shape four customer-focused, entrepreneurial businesses – Electrification, Industrial Automation, Robotics & Discrete Automation and Motion. Each business will be either the global #1 or #2 player in attractive markets with strong secular drivers. ABB’s established domain know-how, world- class engineering and technology expertise, will position the four businesses well to deliver innovative products and solutions for enhanced customer value. ABB’s addressable market is growing by 3.5-4 percent per annum, adding $140 billion in size to reach $550 billion by 2025.
Based on ABB’s common digital platform ABB Ability™, the businesses will provide tailored digital solutions, driving enhanced customer value. Building on emerging technologies including artificial intelligence and its strong software offering, ABB Ability™ will meet the increasing demand from ABB’s customers for digital solutions in the rapidly changing industrial world.
The existing business will provide a complete portfolio of innovative products, digital solutions and services from substation to socket. With a #2 market position globally, its addressable market is presently $160 billion and will grow on average around 3 percent per annum over the long-term. The Electrification business will have strong exposure to rapidly growing customer segments including renewables, e-mobility, data centers and smart buildings. The business will be led by Tarak Mehta, currently president of the Electrification Product division. The Electrification business would have generated approximately $13 billion of revenues in the twelve-month period to end September 2018, including an estimated revenue contribution across the period from GEIS, a business that was acquired June 30, 2018.
The newly shaped business will offer a complete range of innovative solutions enabling customers to operate safe and energy-efficient processes with increasing autonomy. Industrial Automation will include ABB’s industry-specific integrated automation, electrification and digital solutions, control technologies, software and advanced services, as well as measurement & analytics, marine, and turbo- charging offerings. Industrial Automation will be #2 in the market globally. The addressable market of $90 billion is expected to grow on average by 3-4 percent per annum over the long-term. The business will be led by Peter Terwiesch, currently president of the Industrial Automation division. Industrial Automation would have generated approximately $7 billion of revenues in the twelve-month period to end September 2018.
The newly shaped business will uniquely combine machine and factory automation solutions, mainly from B&R, with the most comprehensive robotics solutions and applications suite in the market. The business will be #2 globally, with a #1 position in robotics in the important, high-growth Chinese market.
The addressable market, already $80 billion in size, is anticipated to grow on average at 6-7 percent per annum over the long-term. The businesses digital solutions and services provide customers with enhanced safety, efficiency, up-time and speed, and cater to the growing customer demand for flexible and integrated manufacturing solutions. Robotics & Discrete Automation will be led by Sami Atiya, currently president of the Robotics and Motion division. Robotics & Discrete Automation would have generated approximately $4 billion of revenues in the twelve-month period to end September 2018.
The business will provide customers with a comprehensive range of innovative electrical motors, generators, drives, and service, as well as integrated digital powertrain solutions. Motion will be the #1 player in the market globally, with the largest installed base in an $80 billion market that grows on average around 3 percent per annum. The business will be led by Morten Wierod, currently Managing Director Business Unit Drives. He will become a member of the Executive Committee effective April 1, 2019. Motion would have generated approximately $6 billion of revenues in the twelve-month period to end September 2018.