Activists Want ABB to Spin Off Power Grids Unit
September 13 2016 - 1:50PM
Dow Jones News
FRANKFURT—In a rare move highlighting European blue chips'
vulnerability to activist investors, two top shareholders in
Switzerland's ABB Ltd. are urging the engineering giant to spin off
its power-grids unit to streamline operations.
Managers at Swedish activist fund Cevian Capital and U.S.-based
Artisan Partners say the move would lift shareholder value.
A spinoff "would lift shareholder value by up to 60% -- raising
the share price to about CHF35—because it would lift the
conglomerate discount and reduce complexity," said Cevian
co-founder Lars Fö rberg in an interview.
Mr. Fö rberg said big conglomerates tend to make decisions too
slow and that ABB has long lagged behind rivals in terms of
profitability.
A spokeswoman for ABB said the company is reviewing its power
grid operations and would give an update on the process on October
4.
Mr. Fö rberg's comments are unusual because Cevian rarely makes
its views public. It also shows that investors, including Cevian,
are taking a more activist stance in Europe and increasingly
investing in large companies that are flush with funds in the
ultralow interest rate environment.
Mr. Fö rberg said Cevian is being vocal because there has been
widespread speculation regarding its stance on ABB. Cevian is ABB's
second-largest shareholder, with a stake of roughly 5.4%.
He added he'd prefer a spinoff of the unit to ABB's existing
shareholders, rather than an outright sale, because a spinoff is
less risky and easier to manage. "We also don't see dis-synergies
in a breakup scenario," Mr. Fö rberg said, referring to issues such
as lower revenues for either entity or the spun-off unit being too
small to be profitable.
"There is a long list of successful demergers or spin offs from
conglomerates because smaller entities increase the focus on
improving performance," said fund manager David Samra from Artisan
Partners Limited Partnership. Mr. Samra said Artisan holds a 2.5%
stake in ABB.
ABB's power grids unit, which also makes transformers and
supplies utility and grid companies, posted operating profit of
CHF452 million in the first six months this year on CHF5.3 billion
in revenue. That was nearly one-third of ABB's total revenue.
Not all market participants agree it would make sense to spin
the unit off to existing shareholders.
"The ongoing transformation of the electricity value chain plays
into the hands of ABB," Barclays said in a recent note. "We are not
believers in a split-up of the company, but would like more details
on which areas in power grids offer profitable growth and which
areas are structurally challenged."
Some Industry experts contest the view that power grid has
little in common with other operations at ABB, saying there would
see significant loss of synergies in case of a breakup.
ABB's share price has risen 35% over the past five years,
underperforming U.S. rivals Rockwell Automation Inc. and Honeywell
International Inc. Both companies' share prices more than doubled
over the same time, while shares of European rivals Siemens AG and
Schneider Electric S.E. rose more than 50%.
Activist campaigns against big European companies are
increasingly common. J.P. Morgan Chase said in a recent note that
the value of such campaigns—nearly 100 in total -- grew 62% in the
12 months through June 30, faster than any other region of the
world.
The note said major activist funds are "now turning their
attention to large and mega-cap targets where they can build
multibillion-dollar positions and promote sophisticated corporate
strategy agendas."
Write to Eyk Henning at eyk.henning@wsj.com
(END) Dow Jones Newswires
September 13, 2016 13:35 ET (17:35 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Honeywell (NASDAQ:HON)
Historical Stock Chart
From Apr 2024 to May 2024
Honeywell (NASDAQ:HON)
Historical Stock Chart
From May 2023 to May 2024