Activist Investor Cevian Digs in on Demands for ABB Breakup

(Bloomberg) -- ABB Ltd.’s planned sale of a niche cables business to a Danish supplier failed to appease Swedish activist shareholder Cevian Capital AB, which is pushing for an outright breakup of the Swiss engineering company.

ABB plans to sell its high-voltage cable operation to NKT Cables of Denmark for an enterprise value of $934 million, the Zurich-based company said Wednesday in a statement. The business generates about 5 percent of the revenue of the power-grid business that Cevian wants ABB to hive off into a separate company.

The sale of the cables operation is “sound and reasonable,” but ABB should still spin off the power-grid division, Cevian co-founder Christer Gardell said by e-mail. “The division should be separated and listed by distributing the shares to the owners of ABB.”

“All options are being considered” for the power-grid unit, ABB spokesman Saswato Das said by phone, reiterating that an update on a strategic review of the division will be given Oct. 4.

Company ‘Signals’

ABB and 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. Until now, Chief Executive Officer Ulrich Spiesshofer has made management changes and lowered costs as well as undertaking a strategic review of the business, pledging to unveil the results next month. With the sale of the cables operation, he has left open the question of its future within the company.

“There are signals that the company would like to keep the power grids unit,” Vontobel Bank AG analyst Takis Spiliopoulos said. “At the capital markets day, I would expect them to say more than just who is the best owner for this business. The focus should be on how they will increase the value of the unit and what they are going to do in the future.”

ABB will tell investors on Oct. 4 that it will revamp and boost efficiency at the division, Manager Magazin reported Wednesday, citing people familiar with the company. The plan is backed by ABB’s biggest shareholder Investor AB, it said.

Investor AB spokesman Stefan Stern has said it will wait for the findings and proposals of the review before making any decision.

Case Not Closed

ABB’s cables business generated revenue of $524 million last year, compared with pro-forma sales for the power-grid division of $11.6 billion, according to figures provided by ABB. The sale is a way to simplify and focus power grids, the Swiss company said Wednesday.

“The case is not closed for either a sale, a spinoff or keeping power grids,” Pareto Securities analyst Henrik Falk said. As well as getting a “pretty good price” for the cables business, the sale “might be a step toward a spin off.”

A Bloomberg survey about a potential split up of the company of 13 analysts who follow ABB showed 10 expect ABB to keep the division and six favor this outcome. Three analysts expressed ambivalent views and one analyst preferred a spinoff.

“There’s an argument to be made for keeping it together, but I think management needs to do a better job in convincing the market that there are material synergies,” Barclays analyst James Stettler said in a phone interview. “I’m not saying it would be a disaster, but a breakup would remove some of the unique investment themes from the stock.”

ABB shares rose 0.2 percent to 21.80 Swiss francs as of 1:50 p.m. in Zurich, taking the gain to 22 percent since the start of the year.

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.

A strong order intake at the power grids division in that last couple of quarters means that ABB would actually have a harder time meeting growth targets in the near term without the unit, according to Citi analyst Martin Wilkie.

A breakup is “potentially costly” and not guaranteed to add much to the value of ABB’s stock, even in the near term, JP Morgan analyst Andreas Willi said in a note published before the plan to sell the cables division was unveiled.

--With assistance from Niclas Rolander Corinne Gretler and Hanna Hoikkala To contact the reporters on this story: Veronica Ek in Stockholm at vek@bloomberg.net, Sheenagh Matthews in Frankfurt at smatthews6@bloomberg.net, Albertina Torsoli in Geneva at atorsoli@bloomberg.net. To contact the editors responsible for this story: Tara Patel at tpatel2@bloomberg.net, Andrew Noël