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ABB Plans To Offload Three Businesses That Generate $1.75 Billion

ABB Plans To Offload Three Businesses That Generate $1.75 Billion
Three of its business units will be divested by the Swiss engineering company ABB which together generates an average of $1.75 billion in sales annually which is equivalent to about 6 per cent of its total global annual revenues, the company said on Thursday.
Days prior to the first investor day under the company’s new Chief Executive Officer Bjorn Rosengren, it said that it is “exploring all options” to exit the three businesses - turbocharging, mechanical power and power conversion.
Since Rosengren took change of the company in March, a review of its business operations is being conducted by ABB, a conglomerate that manufactures a wide range of from electric ship motors to factory robots. A business model that was too complicated was one of the major hindrances that is holding ABB back, the former Sandvik boss and current company boss has said.
The current trend in industrial companies is to go for a strategy of slimming down its businesses by disposing off of their less profitable businesses units. For example, ABB’s rival Siemens said earlier this year that it was looking for a buyer for its turbines business while also announcing the sale of its Flender gear box making business unit.
The sale of its power grids business to Hitachi was completed earlier this year by ABB and had announced that it would be returning back to its shareholders an amount of between $7.6 billion to $7.8 billion generated from the sale proceeds.
All the three business units were “high quality” and their profit margins were higher than the group margin range of between 14 per cent and 16 per cent, Rosengren said. Complete sales or spin offs are among the options that the company is considering.
“In this process, we will seek the best value-accretive solution for ABB and those businesses and not put ourselves under time pressure,” said Rosengren, adding portfolio reviews would remain in place.
Even though ABB said that it is open to selling to industry buyers, investors or making an effort to separate and float the businesses, there are no deals as yet in place for the three businesses.
Products including bearings used in industrial food processing operations and belted drives for conveyors in giant coal mines are manufactured by the company’s mechanical power transmission unit.
The business, called Dodge, had 2019 sales of $575 million with 90% of it coming from the Americas.
The turbocharging business of the company is the largest of the three businesses that the company is planning to offload and this unit had hit sale revenues of $800 million and almost half of that amount was accounted for by the unit’s business in Europe. The products of the unit are majorly used in the marine industry where its products enhance the performance of big diesel engines, including those in giant ocean-going ships.
The major client base for the power conversion unit is the telecoms sector and this units includes as clients the likes of Verizon and AT&T. A total sale revenue of $375 million was generated by this unit in 2019 with North America accounting for about three quarters of the revenues.

Christopher J. Mitchell

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