ABB Plans $4 Billion Buyback to Return Disposals Cash


ABB Ltd. (ABBN) unexpectedly announced a $4 billion share buyback as Chief Executive Officer Ulrich Spiesshofer seeks to boost shareholder returns at the world’s biggest maker of power grids.

The move will hand investors some cash from recent disposals, the CEO of the Swiss maker of robots and power transformers said in a statement today. The stock gained as much as 2.9 percent in Swiss trading today.

Spiesshofer, who replaced Joe Hogan in September 2013, has spent his first year crafting a strategy for the Zurich-based company and selling smaller units. The disposal of businesses making tubular steel structures for electricity transmission and industrial heaters and ventilators raised about $1 billion in the last year.

The buyback may help the CEO to reverse a share decline this year that was worse than at German rival Siemens AG (SIE) amid charges for project delays.

ABB shares were up 2.7 percent as of 9:40 a.m. in Zurich, valuing the company at 51 billion francs ($54 billion). Before today, the stock had dropped 8.6 percent this year, while the Swiss Market Index added 7.5 percent. Siemens is mid-way through a 4 billion-euro share buyback and the shares of the Munich-based company have risen 6.5 percent since the move was announced in November.

New Targets

About three quarters of ABB’s share buyback program, which will start Sept. 16, will be used to reduce its share capital. The remainder will support employee share plans, the company said.

ABB today also set new long-term targets, saying it plans to increase operational earnings per share by 10 to 15 percent on a compound annual basis from 2015 to 2020. It targets boosting like-for-like sales by 4 to 7 percent per year. The company said it will steadily increase profitability, now measured in operational earnings before interest, taxes, and amortization, within a range of 11 to 16 percent.

ABB’s Power Systems unit has been grappling with delays to complex renewable energy projects that have weighed on earnings. Spiesshofer has pledged to return the division, which manages big-ticket projects such as linking offshore wind farms to the grid, to profitability and hired consultants Alix Partners Ltd. to help with the turnaround.

“We are shifting our center of gravity towards higher growth segments while enhancing competitiveness and lowering risk particularly in our Power Systems division,” the CEO said today.

Increased Competition

Spiesshofer’s revamp comes at a time when ABB is facing increased competition in a number of markets.

Joe Kaeser, CEO of Siemens, has pledged to focus on electrification and automation, challenging ABB where the Swiss company is traditionally strong. Meanwhile, U.S. rival General Electric Co. (GE)’s takeover of Alstom SA (ALO)’s energy assets creates a stronger No. 3 competitor in electrical transmission.

Spiesshofer still faces challenges to bolster ABB’s growth, said Kepler Cheuvreux analyst Hans-Joachim Heimbuerger.

“With around half of group sales coming from emerging markets and two-thirds from power, metals and mining, and oil and gas end-markets, we see continued growth challenges, at least in the short term,” the analyst said.

ABB’s CEO today cut the number of operational regions from eight to three, with each headed by an executive committee member to remove a layer of hierarchy. Peter Terwiesch, head of central Europe and Germany, will become head of the Process Automation division, succeeding Veli-Matti Reinikkala who becomes head of Europe.

The company also nominated David Constable, CEO of South Africa’s Sasol Ltd., the world’s biggest coal-to-liquid fuel producer, to the board of directors to help ABB expand in Africa.


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