Switzerland-based tech conglomerate ABB sold its power grids division to Japan tech conglomerate Hitachi on Monday afternoon in a deal valued at $11 billion.
The impact of the deal on the Jefferson City factory remains unclear.
ABB makes electrical transformers and employs hundreds of people at its Jefferson City factory at 500 W. Missouri 94. By selling its power grids division Monday afternoon, the company shed its least profitable division as it continues a transformation into a high-tech company.
Local economic leaders said the factory remains important to the community, and they hope its new owners will invest in its employees.
In a news release, ABB said the companies plan to close the deal in the first half of 2020. Before the transaction with Hitachi closes, ABB plans to spin off the power grids division. Once complete, the sale will save ABB about $500 million per year, the company said in a news release.
"To support our customers in a world of unprecedented technological change and digitization, we must focus, simplify and shape our business for leadership," Ulrich Spiesshofer, ABB chief executive officer, said in a news release. "Today's actions will create a new ABB focused in digital industries."
ABB's power grids division is a behemoth of an organization unto itself.
The division employed 36,000 people and had sales of $10.4 billion last year, according to Reuters. Here in Jefferson City, the company employs 775 people and is Jefferson City's sixth largest employer, according to the Jefferson City Area Chamber of Commerce. In a 2012 news release, ABB said that more than 70 percent of all electrical transformers in the U.S. were built by the company.
For ABB, the move marks another turn toward its robotics and high-tech divisions and away from legacy electronics.
Reuters first reported in July that ABB was considering selling the power grids division and caving to activist investors who long wanted the company to focus more on automation. Power grids was ABB's least profitable business, but the company held onto the business at the time because it did not overlap with the rest of ABB's business, according to Reuters.
In November 2017, ABB announced plans to close its more than 50-year-old power grids plant in St. Louis. All 120 employees at the St. Louis factory were laid off in April, according to the St. Louis Post Dispatch.
Randy Allen, Jefferson City Area Chamber of Commerce president, and Jefferson City Mayor Carrie Tergin only heard about the sale through media reports Monday afternoon. Allen said operations at ABB's Jefferson City factory seemed fine leading up to the announcement.
The factory is a major employer that the city wants to maintain, Allen said. This change was about ABB divesting a legacy business, and not the Jefferson City community, Allen said.
"We're checking with the folks across the river (at the factory) to find out more about it," Allen said. "As with all change in these situations, things could be good and things could not be so good."
Tergin said the city is excited to work with Hitachi during the transition, but said it's too soon to speculate on how the sale may impact the Jefferson City factory.
Hitachi said Monday it sees a future for the power grids business.
The Japanese tech conglomerate was once a household maker of consumer electronics like televisions, but got out of the consumer electronics business over the last decade, according to the Wall Street Journal. Now Hitachi focuses on big items like power plants and train systems, according to the Wall Street Journal.
The power grids division fell short of the 10 percent profitability goal set by ABB in recent years, according to Reuters. In a news release, Hitachi said it sees room for the power grids division to grow because of rising energy demands and the increasing adoption of renewable energy sources.
Hitachi CEO Toshiaki Higashihara said in a news release that Hitachi plans to combine the best of ABB's power grids technology with Hitachi's experience working in digital technologies. The agreement will allow Hitachi to address changing energy demands, Higashihara said in a news release.
"This helps us address society's issues and improve quality of life," Higashihara said in a news release.
Costs associated with the separation will cost ABB between $500 million and $600 million. Hitachi will buy 80.1 percent of the power grids business by 2020. The Japanese company has the option to later buy the remaining 19.9 percent and make it a wholly-owned subsidiary.
Allen said the sale could work out well for the community.
"Hitachi was trying to capture that part of the market, so acquisitions for them are good and that could be a good thing," Allen said.