Hitachi Ltd. said Monday it has reached a deal to purchase the power grid business of Swiss engineering group ABB Ltd., initially investing $6.4 billion for an 80.1 percent stake before a complete takeover in the future.
The deal, Hitachi’s biggest-ever acquisition, would strengthen the electronics maker’s competitiveness in the power transmission business against General Electric Co. and Siemens AG.
Hitachi said it will close the deal to acquire the 80.1 percent stake around the first half of 2020. After the transaction is settled, Hitachi will buy up the remaining stake in four or more years.
The 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 the Swiss engineering giant more focused on robotics and automation.
For Hitachi, the move is part of Chief Executive Officer Toshiaki Higashihara’s efforts to restructure the diversified company, which is vying to become one of the top grid companies in the world, according to a June presentation.
A divestment would also meet a longtime demand of activist investor Cevian Capital AB, which became a major ABB shareholder over 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 grid business rebounded following productivity and margin gains, prompting ABB to work with advisers to consider its options, sources said in October. The business generated $7.1 billion in revenue in the first nine months of 2018 and a profit margin of 9.8 percent, the lowest of its four units.
ABB and Hitachi said last week they were in discussions to expand and redefine an existing strategic power grid partnership that dates to 2014, without providing details on the terms.
The acquisition will bolster Hitachi’s position in the growing power transmission and distribution sector, and help it diversify away from its nuclear plant business. The company’s reactor sales have dried up as the global industry is beset by overruns, heightened competition from natural gas and renewables, and stricter rules following the Fukushima crisis.
Any agreement would add to the $3.5 billion of announced acquisitions Hitachi has been involved in over the last three years, according to data compiled by Bloomberg, with the biggest being last year’s $1.25 billion purchase of units and assets from Accudyne Industries.
The deal is the latest major overseas transaction by a Japanese company as financing costs remain low. 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 ($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.
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