ABB’s Deal to Sell Power Grids Division Will Increase its Focus on Automation

ABB announced on 17th December, that it will sell around 80.1% of its power grids business to Japan’s Hitachi, the deal values the business at an Enterprise Value of $11 billion. ABB will receive around $6.4 billion in cash for the 80% stake which it plans on returning to investors possibly via a share buyback, for now at least it intends to keep the remaining 20% stake. This break-up of ABB has long been speculated and indeed pressured by some activist investors and follows similar moves to focus their businesses at peers such as Honeywell, Siemens and General Electric. Following the sale of the division we assess that ABB’s purity level in Robotics, Automation and AI will move to approximately 60% from around the 41% purity level it is today. The increased focus on this space aligns with their long-term vision which revolves around the increasing importance of automation and digitization of assets. ABB will invest heavily into software and controls in areas such as IoT, and discrete industrial manufacturing. The company estimates that the end markets for the new look ABB is worth around $410 billion today, growing to around $550 billion by 2025.