ABB Divests Power Grids to Hitachi

After months of speculation and weeks of rumors, yesterday ABB announced it was divesting its Power Grids Division to Hitachi. The months of speculation derived from the European activist investor Cevian Capital, which won a seat on the ABB Board in 2017, apparently with an agenda of breaking up the group. ABB shareholders will receive roughly $7.7 billion from the transaction through buybacks or similar actions.

The divestment places the remaining ABB more concentrated in industrial automation, especially with the 2017 acquisition of B&R, a global thought leader in factory automation and machine control. There was a question during the announcement webcast concerning the placement of B&R with the ABB Robotics business. CEO Ulrich Spiesshofer answered that the close pairing of factory automation and robotics offered the greatest opportunity at present. This makes sense given that ABB is now the only “one-stop-shop” with leading positions in both of these segments.

A major move like this caused a lot of discussion among the ARC analysts who cover various ABB businesses and technologies. Here are my take-aways from those discussions:

First, a fair share of the existing ABB Ability solutions has targeted the Power Grids business. Examples are asset health for transformers, substation optimization, APM for power T&D, and DERMS (Distributed Energy Resource Management Solution). Going forward ABB will not have an OEM position for these solutions. On the positive side, electric utilities never rely on a single OEM for their T&D assets, either.

Second, is the relationship between Power Grids and the centralized ABB R&D organization. For decades, that R&D organization has been the genesis of technologies that enabled ABB to succeed in the grid business, especially the HVDC area. It’s a unique asset that should be carefully cultivated by the business owners, new and old.

Finally, one aspect of yesterday’s announcement that hasn't been discussed much is ABB’s abandonment of a matrix-style organization and adoption of a simplified organizational structure. The presentation included a single slide illustrating this progression (see figure). ABB’s organization has been fiendishly complex for many, many years. And while this may have complicated things for ABB customers, it also complicated the processes of strategy and product development within ABB. For example the Select I/O (“smart I/O”) for its ABB System 800xA was later to the market (1Q2017) than many competing products, albeit ABB did a superb job of engineering the solution and developing accompanying software that enabled it to deliver value to customers. Going forward, a simplified organization should find favor with both ABB customers and employees. It represents a fundamental change to the traditional ABB culture.