What's going on?
On Monday, Japanese industrial giant Hitachi announced a $6.4 billion deal to buy 80% of Swiss-Swedish industrial giant ABB’s power grids. Moshi moshi, mannen!
What does this mean?
Just like its pharmaceutical countryman Takeda, Hitachi wants to go from big in Japan to global powerhouse (pun intended). Buying ABB’s power grids would make it one of the largest players in the power struggle that is the electricity distribution game, just behind America’s General Electric.
But some investors think Hitachi’s largest-ever acquisition is a bad call. Like Takeda, the company will likely take on a big financial burden after only just recovering from a decade of losses; and even the industry-leading General is struggling to generate decent revenue from its power unit as the world moves towards renewable-based energy networks.
Why should I care?
For markets: Activists strike again.
ABB will be pleased: it gets to offload its biggest but worst-performing division and focus instead on its digital and robotics businesses. And it’s going to share the love, distributing proceeds from the sale to its shareholders. Activist investors in the company had been pushing it to chop off the underperforming arm and, after remaining steadfast for two years, ABB’s CEO finally agreed. The company will keep 20% of the grid business, with the option to convert it into cash three years after the deal goes through.
The bigger picture: If you can’t stand the heat…
Hitachi’s power grid purchase is, in part, a way to diversify its power stance – which previously hinged on a new nuclear power station in the UK. But that’s now up in the air, along with the future of nuclear more generally. Speaking of Britain, government price caps on utilities were blamed on Monday for the failed merger of UK energy companies Npower and SSE. They’d decided to join forces last year but couldn’t agree on terms given the newly powered-down landscape.