ZURICH, Switzerland - In a bid to reduce costs and focus on areas like automation, the Swiss engineering group ABB has announced plans to set its Power Grids division to Japan's Hitachi.
In a statement on Monday, the Zurich-based company announced that it had agreed to sell 80.1 percent of its Power Grids business to Hitachi, while ABB would initially retain 19.9 percent of the enterprise.
With a floor price set at 90 percent of the enterprise value, the company said that the deal would include an exit option at fair market value, exercisable by ABB three years after closing.
ABB said that the net cash proceeds of $7.6-7.8 billion from the deal would be returned to shareholders.
According to the company, the transaction put the enterprise value of its Power Grids business at $11 billion.
ABB's Power Grids business, which currently employs 36,000 people, recorded $10.4 billion in sales in 2017.
In the third quarter, it had an operating profit margin of 10.0 percent, which was down 60 basis points from a year earlier.
While ABB's power grid industry would help Hitachi expand its global presence in the industry, the Swiss engineering group aims to shift its focus on other areas, especially automation.
On Monday, ABB said in its statement that upon closure of the deal, the company would restructure its remaining businesses.
The company said that its restructuring is aimed at reducing run-rate costs by $500 million annually.
ABB, which decided to retain its Power Grids business two years back, despite calls for its sale by some shareholders, changed it strategy recently, to boost other businesses and offload its least profitable division.
ABB Chief Executive Ulrich Spiesshofer explained in a statement, "Our four newly shaped businesses, each a global leader, will be well aligned to the way our customers operate and focus stronger on emerging technologies such as artificial intelligence."