Switzerland-based ABB Ltd. agreed to sell its power grids business to Japan-based Hitachi Ltd. at an enterprise value of $11 billion as part of a plan to simplify its business structure and focus on digital industries.
The Japanese conglomerate plans to initially acquire an 80.1% stake in the power grids business. ABB will retain the remaining 19.9% stake in the unit, with the option to transfer the shareholding to Hitachi three years after the initial transaction closes, expected by the first half of 2020 subject to customary closing conditions.
Hitachi holds a call option to acquire the remaining 19.9% stake for at least 100% of the enterprise value, while ABB can choose to sell the stake for at least 90% of the enterprise value.
ABB intends to return all net cash proceeds of approximately $7.6 billion to $7.8 billion from the initial sale to shareholders through share repurchases or other similar methods. The Swiss electrical components and equipment maker expects to record $500 million to $600 million in one-time non-operational transaction and separation related costs, as well as a related tax impact of $800 million to $900 million.
The deal helps simplify ABB's structure to focus on its four leading businesses: electrification, industrial automation, robotics and discrete automation, and motion. ABB will discontinue its legacy matrix structure, effective April 1, 2019.
Over the medium term, ABB expects $500 million in annual run-rate cost reductions across its operations, while it expects to record $500 million of related non-operational restructuring charges over the next two years.
Hitachi, meanwhile, said it aims to build an energy platform that connects mobility, life, industry and other fields.
UBS served as the sole lead financial adviser and Goldman Sachs Japan Co. Ltd. acted as financial adviser to Hitachi for the deal. Credit Suisse AG and Dyal Co. LLC acted as financial advisers, and Freshfields Bruckhaus Deringer LLP served as legal adviser to ABB.