November 16, 2018 / 6:00 AM / in 6 months

UPDATE 2-ABB talking to three Asian suitors about Power Grids sale - sources

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John Revill Arno Schuetze

ZURICH/FRANKFURT, Nov 15 (Reuters) - ABB is in talks with Hitachi Ltd and Mitsubishi Electric Corp to sell all or part of the Swiss engineering group’s embattled power grids business, sources familiar with the issue told Reuters.

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.

ABB hopes to announce a deal by the end of next week, the source added.

The deal could be structured as a joint venture, with a financial investor potentially joining the successful bidder in taking a stake, the sources said.

ABB is expected to keep a shareholding in the business, which may be valued at more than $11 billion including debt, and which it would continue selling components to.

The company could return the proceeds to shareholders through a new share buyback and also to accelerate acquisitions in the automation part of ABB’s business.

ABB declined to comment.

The company launched a sale process last month to sell power grids, the business which makes power transformers and substations for transmitting electricity over long distances.

A decision to sell power grids represents a u-turn for Spiesshofer, who decided to keep the business two years ago despite calls from some shareholders to sell.

Cevian Capital, ABB’s second-largest shareholder, has become increasingly vocal in its campaign to separate power grids, while other large shareholders remain opposed to the decision to keep the unit.

Power grids has improved its performance over the last two years, but still has the lowest profit margin among ABB’s businesses, which also includes industrial robots and drives used in factories.

Its weak performance has weighed on ABB’s stock price, ramping up the pressure on Spiesshofer, who has led the company since 2013.

The executive 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.

While ABB is exploring a sale to Hitachi or Mitsubishi, it favours State Grid of China, although a sale could run into opposition from regulators in the United States and Europe, one source said.

If Hitachi were to be successful, it could seek to bring in a financial investor to help with the deal, another source 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 during the third quarter, a decline of 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; Editing by Michael Shields and Alexandra Hudson)

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