ABB urged to consider share buyback

ABB Ltd Chief Executive Officer Fred Kindle may be ready to make a big acquisition after returning the world's largest electrical-grid maker to profitability and amassing more than $2 billion in cash.

That might be a big mistake, said Thomas Lusetti, a Zurich- based fund manager at VP Bank AG who helps manage the equivalent of $26 billion including ABB.

"I would like a share buyback a lot more," Lusetti said. "There are shareholders who stood by during the difficult times. They certainly would appreciate a biscuit in the form of an increased dividend."

Kindle has increasingly hinted that he's leaning toward a takeover worth "many billions".

He's promised not to repeat the mistakes of the 1990s, when ABB snapped up more than 200 companies during a spending spree that pushed it close to bankruptcy.

Asbestos claims also contributed to the financial crisis. Of 28 analysts surveyed by Bloomberg, 22 rate the shares "buy". That may change if investors don't like what Kindle has to say when he updates them on his strategy.

"ABB has a very bad track record in acquisitions," said Panagiotis Spiliopoulos, an analyst at Bank Vontobel in Zurich who has a "buy" rating on the stock.

"Kindle should wait. It isn't the right time yet."

ABB shares have more than tripled since the company's last major purchase in September 2001, outpacing Munich-based Siemens AG, Europe's largest engineering company. That's given ABB a market value of 68.4 billion francs ($56.5 billion).

Dividend yield

Under Kindle, ABB has posted a profit the past two years after four years of losses. The company had net cash of $2.4 billion as of June 30. A recent disposal may increase that by almost $1 billion and one analyst said the company may have $8.6 billion in cash, including a possible share issue, by the end of 2007.

In 2006, ABB was able to pay a dividend for the first time in five years. Its dividend of 24 cents a share paid out this year is one-sixth of Siemens's.

"The dividend yield isn't big," said Dieter Buchholz, a fund manager who helps oversee $107 billion at AIG Private Bank Ltd. in Zurich including ABB shares.

"They could do more," said Buchholz.

ABB's dividend yield is 0.81 percent, compared with St. Louis-based Emerson Electric Co, the world's largest maker of power equipment for oil companies, at 2.12 percent, and France's Schneider Electric SA, the world's biggest maker of circuit breakers, at 3.03 percent, according to Bloomberg data.

Dividend yield is used to evaluate return on a stock excluding the effect of price appreciation.

Final milestone

Formed in 1988 through the merger of BBC Brown Boveri of Switzerland and ASEA AB of Sweden, ABB makes components and systems to transmit and distribute electricity, motors and generators as well as robots.

Its workforce has shrunk to about 111,000 from a peak of 219,000 in mid-1998 as units including paper-making equipment and water treatment were jettisoned.

"A look at the past shows that they bought too much and too fast," Buchholz said. "To invest in their own business is better. Big acquisitions are always difficult to integrate."

ABB agreed last Monday to sell its US-based Lummus Global energy services' unit to Chicago Bridge & Iron Co for $950 million, capping six years of divestitures.

Kindle, who took over in January 2005, called the transaction the "final milestone" of ABB's strategy of selling units to focus on power and automation technology.

Proceeds from the deal will add to ABB's cash holdings, which Gerard Moore of Societe General estimates may reach as much as $8.6 billion by the end of 2007.

Bloomberg News

(China Daily 09/06/2007 page15)