ZURICH/FRANKFURT (Reuters) - ABB is in talks with Hitachi Ltd and Mitsubishi Electric Corp to sell all or part of its power grids business, sources familiar with the matter told Reuters, boosting the embattled Swiss engineer’s shares.
The stock rose as much as 4 percent in early Friday trading, after the sources said ABB was looking to sell a business that could be worth around $11 billion including debt.
The Swiss company has also started negotiations with State Grid of China, one source said, with Chief Executive Ulrich Spiesshofer speaking to the Chinese company’s leadership during a trip to the country this week.
A decision to sell the power grids business, which makes power transformers and substations for transmitting electricity, marks a u-turn for Spiesshofer, who decided to keep the business two years ago, despite calls from some shareholders to sell.
The unit’s weak performance has weighed on ABB’s stock price, and although it has fared better over the last two years, it still has the lowest profit margin of ABB’s businesses, which also include industrial robots and drives used in factories.
ABB hopes to announce a deal by the end of next week, one source said, although others said a deal could take longer.
The deal could be structured as a joint venture, with ABB retaining a shareholding in the business to which it would continue selling components.
The company could return the proceeds to shareholders through a new share buyback and also use them to accelerate acquisitions in the automation part of its business.
ABB declined to comment. A Hitachi spokeswoman declined to comment on individual deals. A Mitsubishi Electric spokeswoman said her company had not been approached by ABB about a deal.
State Grid could not be reached via phone or email and it did not respond to a query sent to its official Weibo account.
At 1100 GMT, ABB’s shares were up 2.1 percent at 20.18 Swiss francs, among the biggest rises by a European blue-chip stock.
Earlier this year Spiesshofer said ABB would consider selling more of its businesses, saying its current structure was not “cast in stone”.
An analyst said ABB’s advanced technology - particularly in areas like high-voltage direct current, which transmits electricity over long distances - made the power grids business attractive to potential buyers.
“The turnaround is finally well under way at power grids and ABB would get a better price now than they would have two years ago,” said Richard Frei at Zuercher Kantonalbank.
Still, the company’s problems were not only around power grids, he said. “There are still growth concerns which won’t go away with a sale of power grids.”
Spiesshofer last month promised to revitalise ABB’s earnings to reverse a slump in its shares, which hit a nearly two-year low after the group reported third-quarter results.
Selling power grids would enable ABB to focus on the more profitable areas of industrial automation, analysts have said.
Power Grids employs 36,000 people and had sales of $10.4 billion last year. It had an operating profit margin of 10.0 percent in the third quarter, down 60 basis points from a year earlier and just inside its target range of 10 to 14 percent.
Reporting by John Revill, Arno Schuetze, Oliver Hirt and Kane Wu; additional reporting by Taiga Uranaka in Tokyo; Editing by Alexandra Hudson and Mark Potter