ABB to Keep Power Grid Unit Despite Calls for Spinoff -- 3rd Update

By Brian Blackstone 

ZURICH--Swiss engineering giant ABB Ltd. on Tuesday rebuffed calls from some of its largest shareholders to spin off its power grid unit, saying it would revamp the division instead under its ownership.

"Following a comprehensive strategic portfolio review, the board and executive committee of ABB have concluded that the transformation of Power Grids under ABB ownership will unlock maximum shareholder value compared to other ownership options such as sale, [initial public offering], spinoff or joint venture," the company said, as it unveiled a broad strategic review of its operations.

ABB also said it plans to buy back up to $3 billion of its shares from 2017 through 2019.

The share buyback "reflects the company's confidence and the continued strength of ABB's cash generation and financial position," the company said, and reaffirmed its aim to generate 3% to 6% annual revenue growth from 2015 to 2020.

The company also said it would consolidate its world-wide brands under the ABB umbrella over the next two years, and unveiled a strong shift toward digital offerings. It increased the target for a cost-savings plan launched last year by 30% to $1.3 billion.

ABB shares were up over 1% at 22.26 Swiss francs ($22.76) in early European trading.

"We believe that today's announcement will be well received overall," said analysts at Morgan Stanley. "Longer-term shareholders should generally be encouraged here by a management team that is executing ahead of its peers in the sector."

The Wall Street Journal reported last month that two of ABB's top shareholders--Swedish activist fund Cevian Capital and U.S.-based Artisan Partners--were urging the company to spin off its power grids unit to streamline operations and raise shareholder value.

"In our strategic portfolio review we have listened carefully to all stakeholders and all expressed views," ABB Chief Executive Ulrich Spiesshofer said Tuesday.

"After a very thorough and detailed process, supported by leading advisers, we have concluded that the continued transformation of power grids under ABB's ownership creates the highest value for our shareholders and customers," he said.

In a conference call with reporters, Mr. Spiesshofer said he spoke with large investors including Cevian earlier Tuesday, though he declined to disclose details of those calls.

"We will drive a lot of value creation for our shareholders" with the measures outlined on Tuesday, he said.

Still, Cevian criticized Tuesday's announcement. "The board has decided to keep the conglomerate structure. We think this is an unfortunate decision," said Cevian co-founder Lars Förberg, adding that the company should be valued at 35 francs a share if its underlying business matched the performance of competitors. "The board and management team will be held accountable for realizing 35 francs [a share]. The time horizon is now," he said.

Asked during a presentation about Mr. Förberg's statement, Mr. Spiesshofer said it is important for ABB to take such views "very seriously." He also pointed to more favorable market reactions to Tuesday's strategy announcement.

ABB also announced Tuesday a strategic partnership with Microsoft Corp. to combine cloud technology with industrial digital technology.

It unveiled a separate partnership with Fluor Corp. for engineering and construction projects related to electrical substations.

Write to Brian Blackstone at [e-mail]

(END) Dow Jones Newswires

October 04, 2016 05:06 ET (09:06 GMT)

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