ABB to Keep Power Grid Unit Despite Calls for Spinoff -- 4th Update
October 04 2016 - 6:36AM
Dow Jones News
By Brian Blackstone
ZURICH--Swiss engineering giant ABB Ltd. on Tuesday rebuffed
calls from some of its largest shareholders to spin off its power
grid unit, saying it would revamp the division instead under its
ownership.
"Following a comprehensive strategic portfolio review, the board
and executive committee of ABB have concluded that the
transformation of Power Grids under ABB ownership will unlock
maximum shareholder value compared to other ownership options such
as sale, [initial public offering], spinoff or joint venture," the
company said, as it unveiled a broad strategic review of its
operations.
ABB also said it plans to buy back up to $3 billion of its
shares from 2017 through 2019.
The share buyback "reflects the company's confidence and the
continued strength of ABB's cash generation and financial
position," the company said, and reaffirmed its aim to generate 3%
to 6% annual revenue growth from 2015 to 2020.
The company also said it would consolidate its world-wide brands
under the ABB umbrella over the next two years, and unveiled a
strong shift toward digital offerings. It increased the target for
a cost-savings plan launched last year by 30% to $1.3 billion.
ABB shares were up over 1% at 22.26 Swiss francs ($22.76) in
early European trading.
"We believe that today's announcement will be well received
overall," said analysts at Morgan Stanley. "Longer-term
shareholders should generally be encouraged here by a management
team that is executing ahead of its peers in the sector."
The Wall Street Journal reported last month that two of ABB's
top shareholders--Swedish activist fund Cevian Capital and
U.S.-based Artisan Partners--were urging the company to spin off
its power grids unit to streamline operations and raise shareholder
value.
"In our strategic portfolio review we have listened carefully to
all stakeholders and all expressed views," ABB Chief Executive
Ulrich Spiesshofer said Tuesday.
"After a very thorough and detailed process, supported by
leading advisers, we have concluded that the continued
transformation of power grids under ABB's ownership creates the
highest value for our shareholders and customers," he said.
In a conference call with reporters, Mr. Spiesshofer said he
spoke with large investors including Cevian earlier Tuesday, though
he declined to disclose details of those calls.
"We will drive a lot of value creation for our shareholders"
with the measures outlined on Tuesday, he said.
Still, Cevian criticized Tuesday's announcement. "The board has
decided to keep the conglomerate structure. We think this is an
unfortunate decision," said Cevian co-founder Lars Förberg, adding
that the company should be valued at 35 francs a share if its
underlying business matched the performance of competitors. "The
board and management team will be held accountable for realizing 35
francs [a share]. The time horizon is now," he said.
Asked during a presentation about Mr. Förberg's statement, Mr.
Spiesshofer said it is important for ABB to take such views "very
seriously." He also pointed to more favorable market reactions to
Tuesday's strategy announcement.
ABB also announced Tuesday a strategic partnership with
Microsoft Corp. to combine cloud technology with industrial digital
technology. Last month, ABB announced it had hired Guido Jouret, a
former executive at Cisco Systems Inc., as its chief digital
office. He started Oct. 1.
Mr. Spiesshofer said the goal "is to develop one of the world's
largest industrial cloud platforms."
ABB also unveiled a separate partnership with Fluor Corp. for
engineering and construction projects related to electrical
substations.
Write to Brian Blackstone at brian.blackstone@wsj.com
(END) Dow Jones Newswires
October 04, 2016 06:21 ET (10:21 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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