ABB in talks to buy out L&T’s electrical business
21 June 2017
ABB, the Swedish-Swiss multinational, is in discussions with Larsen & Toubro to acquire its electrical and automation division. The division that generated revenues of Rs 4,650 crore and operating profit of a little over Rs 700 crore in 2016-17 is expected to be valued at Rs 14,000-18,000 crore, two people familiar with the development told ET.
ABB owns 75 per cent in ABB India, its locally listed arm, and the acquisition will help the Zurich-headquartered firm consolidate its position in the country. The ABB Group has a market capitalisation of $57 billion and revenues of $35.5 billion.
ABB and L&T both declined to say anything about the discussions, with the spokespersons of the companies saying they do not comment on speculation and rumour.
A person aware of the transaction said L&T was seeking a valuation of Rs 18,000 crore for the entire business, which includes the Indian operations as well as subsidiaries in Malaysia, Saudi Arabia and the United Arab Emirates. ABB has offered over Rs 14,000 crore, and discussions are on to arrive at a final figure.
L&T looks for strategic investor
The second person aware of the transaction said L&T wanted to sell the division to a strategic investor and not a private equity player, as it felt the former would pay more.
Depending upon the valuation, L&T will either divest its entire holding or retain a minority stake that will be sold later, he added. In the past, too, L&T had tried to sell the electrical and automation business, as it looked to prune its portfolio and exit non-core areas. But negotiations with suitors such as Eaton Corporation failed due to a variety of reasons.
Company watchers say prospects of a successful transaction are brighter this time around because the division’s plants have been segregated from the parent and real estate has been clearly demarcated at all locations.
“Earlier, this was a big problem for arriving at a proper valuation,” said a senior official in the know. While declining to comment on the transaction, the ABB spokesman said the company had been investing in India for decades.
“We continuously upgrade or add factories and production lines or new products, technologies, etc, at an average capex of $100 million per annum in such various forms. Even when we consolidate operations, we continue to invest in improving our facilities, adding lines for our factories while cost-optimising existing lines,” he said.
ABB is becoming very aggressive in this space. In the US, it is in active discussions with GE to buy its electrical and switchgear business for an estimated $2.5-3 billion, said analysts tracking this space.
L&T’s electrical and automation business offers a wide range of products and solutions for electricity distribution and control in industries, utilities, infrastructure building and agriculture sectors.
Its basket of offerings includes low and medium voltage switchgear systems, industrial and building automation solutions, surveillance systems, energy meters and protection relays.
The business runs six switchgear training centres across the country educating engineers, consultants, contractors, technicians and electricians about good electrical practices.
The division has manufacturing facilities at Navi Mumbai, Ahmednagar, Vadodra, Coimbatore and Mysuru in India as well as in Saudi Arabia, Jebel Ali (UAE), Kuwait, Malaysia, Indonesia and the UK. In 2015,
L&T had decided to divest its industrial valves unit. The company was in discussions with American private equity firm KKR. The deal was expected to fetch Rs 3,000-4,000 crore, but got stuck due to serious differences over the price.