Westinghouse and Swiss Firm Plan Ventures : Deals Expected to Reap $2 Billion a Year in Sales
Westinghouse Electric Corp. and ABB Asea Brown Boveri Ltd. of Switzerland, two leading electrical equipment makers, announced Tuesday that they are joining forces in $2.1 billion in ventures in power generation, transmission and distribution.
Recently merged Swedish-Swiss electrical giant ABB Asea Brown Boveri, which previously said it was giving high priority to gaining a greater U.S. market share, said it was paying Westinghouse $500 million for a 45% share in the ventures.
The deal is an attempt by Westinghouse to perk up earnings from lackluster operations, securities analysts said.
“Generally, joint venturing is considered an alternative to divesting,” said H. P. Smith of Smith Barney, Harris Upham & Co. in New York. “They take a business, cut it back as far as they can, then if it’s still not meeting the goals, they consider” selling it or finding a partner.
Westinghouse will have a 55% interest and ABB a 45% interest in each of two partnerships. One partnership will make, sell and service steam turbines and generators for U.S. and Canadian utilities. The businesses have current annual sales of about $700 million and employ about 5,000 people.
Westinghouse’s turbine business “hasn’t earned a lot of money for quite a number of years now. The market is depressed and will stay depressed,” Smith said.
ABB Could Buy More
The other partnership will involve transmission and distribution products, including transformers, meters, controls and switch gear, now sold in the United States and Canada. The businesses have annual sales of about $1.4 billion and employ about 11,000 people.
ABB has the possibility of buying a bigger share of the transmission and development part of the venture after two years.
The statement said annual sales of the merged areas were worth $2.1 billion.
The memorandum of understanding signed by the partners allows ABB to buy the transmission and distribution joint venture or Westinghouse to force the sale in 1990.
Smith said Westinghouse improved its transmission and distribution equipment business “to a point where it was making OK money, but still well below the corporate goals.”
In both cases, the partners will combine plants and engineering and marketing organizations in fully developed industries that show reduced growth potential.
“With the entrenched fixed costs and relative slow rate of growth in those industries, a partnership is the way to go,” said Julian Manear, an analyst in Chicago for Pershing & Co. “There’s a sharing of resources, so you don’t have a duplication.”
Manear said he does not expect wholesale employee layoffs or plant closings, but foresees delays in capital spending.
John C. Marous, who became chairman and chief executive of Westinghouse in January, recently told securities analysts that the company’s goals for 1988 include sales growth of 8.5% and operating profit margins of at least 10%.
