(Bloomberg) -- ABB Ltd. plans to keep and grow its power-grids division, defying Swedish activist shareholder Cevian Capital AB, which is pushing the Swiss engineering company to spin off the unit.
“The continued transformation of our power grids division under ABB’s management is the best of all carefully assessed options for shareholders,” ABB Chairman Peter Voser said Tuesday in a statement for a capital markets day in Zurich, where the company is based. ABB’s comprehensive strategic portfolio review concluded that this will “unlock maximum shareholder value” compared with options like a sale, spin off, joint-venture or IPO, it said.
ABB also announced a plan to buy back $3 billion worth of shares between 2017 and 2019 and raise its margin target.
ABB Chief Executive Officer Ulrich Spiesshofer and Cevian co-founder Christer Gardell have been locked in debate for more than a year over the structure of the Swiss maker of power and automation equipment. Cevian has urged ABB to carve out and list the power-grid division, saying ABB is too complex and difficult to run. Spiesshofer has made management changes, lowered costs and last month agreed to divest a niche high-voltage cable operation within the division. That sale, representing only 5 percent of the power-grid unit’s revenue, failed to appease Cevian.
Cevian found support for a break up of ABB from shareholder Artisan Partners Ltd., with managing director David Samra saying ABB’s current structure lacks focus, according to an interview in Swedish newspaper Dagens Industri.
ABB’s biggest shareholder Investor AB has been much less vocal about the position it takes, saying only that it will wait until the review of the division has been completed before any decisions can be taken. Investor AB holds 10.5 percent of shares.
In a one-page document outlining its stance, Cevian has said ABB post-split would be worth 35 Swiss francs a share and the operation would “enhance focus, reduce overhead costs, and create a more nimble, pure-play company.” The weak operational performance of ABB and power grids over the last eight years has shown “the costs of complexity are too high,” it said.
Power grids was created as a unit at the start of this year but pro-forma figures for 2015 show it was the least profitable of ABB’s four divisions with operational earnings before interest, tax and amortization making up 7.5 percent of sales.
To contact the reporters on this story: Alice Baghdjian in Zurich at email@example.com, Albertina Torsoli in Geneva at firstname.lastname@example.org, Sheenagh Matthews in Frankfurt at email@example.com. To contact the editors responsible for this story: Tara Patel at firstname.lastname@example.org.
©2016 Bloomberg L.P.