As the first major step in the strategic evaluation of its massive Power Grids division, ABB Ltd. (ABB - Free Report) has decided to sell its global high-voltage cable system business to NKT Cables in a deal worth €836 million ($934 million).
ABB shares rose 1.7% in the last trading session following the announcement. The transaction is expected to be wrapped up in first-quarter 2017, subject to customary regulatory approvals.
The Divestiture & Its Synergies
The high-voltage cables unit is part of ABB’s $11.6 billion Power Grids business. High voltage cables are the key components in sustainable energy networks. They transmit huge amounts of electricity over long distances for offshore wind farms and oil-production rigs. The business’ projects include a 105.5 km long subsea power link in the Barents Sea north of Norway.
ABB’s high-voltage cable technology and manufacturing along with its extensive service footprint complement NKT Cables’ operations. The combined operational scale and scope of the two businesses will be ideally suited to meet the rising global demand for long-distance power transmission cable systems.
Particularly, the integrated cable business will have a concrete foothold in both the expanding offshore wind industry and the developing interconnector grid in Europe.
ABB and NKT Cables have also signed an agreement for a long-term strategic partnership, under which they will work together on future projects in areas like sub-sea interconnections and direct current transmission links.
ABB LTD-ADR Price and Consensus
ABB Under Pressure?
ABB has been facing staunch criticism from its shareholders, who believe that the company’s performance has suffered due to its highly complex structure. In fact, two of its top shareholders — Swedish activist fund Cevian Capital and U.S.-based Artisan Partners — have reportedly urged the Swiss power and automation company to spin off its Power Grids business, claiming that the step will streamline operations and raise shareholder value.
The Swiss engineering giant considers the offloaded unit as a niche business, which has been improving in recent times. In fact, the business generated $524 million in adjusted standalone revenues last year. However, ABB is facing what will likely be the end to Europe's offshore wind-power boom years, as the industry grapples with shrinking investments and uncertainty over future subsidies.
ABB’s Strategic Restructuring
Chief Executive Ulrich Spiesshofer has been divesting underperforming businesses regularly since he took the helm over three years ago and has raised nearly $2 billion in proceeds from such activities.
At the heart of it, the cables deal is part of ABB’s active portfolio management and will make the core power grids business simpler, stronger, and more focused. ABB is due to give an update on the strategic review of the power grids business on Oct 4.
ABB currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the same space include EnerSys (ENS - Free Report) , AO Smith Corp. (AOS - Free Report) and Schneider Electric SE (SBGSY - Free Report) , each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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