ABB sells Lummus and finds “suspect payments”

ABB is set to make acquisitions in its core businesses Keystone

The ABB engineering group is to sell its Lummus Global oil and gas business in a move that will end its divestment programme and swell its coffers for acquisitions.

ABB said on Monday it was selling the business to the Chicago Bridge and Iron Company (CB&I), which is based in the Netherlands, for an enterprise value of $950 million (SFr1.143 billion).

Also on Monday, ABB said it had found “certain suspect payments in a number of countries” in connection with the divestment of Lummus and had reported these to the United States Department of Justice and the Securities and Exchange Commission.

ABB, which has recovered from a long restructuring drive, had wanted to divest Lummus Global for some time, after settling asbestos claims against it in August last year, with costs of about $40 million.

Five months earlier a US court confirmed the company’s $1.43 billion asbestos settlement plan for its larger US unit, Combustion Engineering.

Claimants demanded compensation after exposure to the substance, which can cause cancer and other diseases.

Final milestone

“The divestment of Lummus Global is the final milestone in our strategy of focusing on our highly successful core business in power and automation technology,” ABB chief executive Fred Kindle said in a statement.

CB&I is to buy the entire Lummus business, which supplies services to the oil and gas, petroleum refining and petrochemical process industries, and had revenues of $988 million in 2006 and around 2,400 employees.

CB&I said it expected the acquisition to close in the fourth quarter of this year and to boost 2008 earnings.

“Once again ABB has proven its astute handling of a difficult divestment, which two to three years ago could only have been sold at a huge loss,” commented analyst Panagiotis Spiliopoulos at Bank Vontobel.

“We expect ABB to generate a small book gain out of this sale.”

Acquisitions

In an interview with the SonntagsZeitung newspaper, CEO Kindle said ABB was aiming for acquisitions in its core businesses, looking rather to North America and emerging markets than to Europe.

ABB said on Monday it was cooperating fully with the authorities on the suspect payments issue and continuing its internal investigations. It added that it retained liability for potential fines and penalties.

The group reported in July that it might have violated anti-bribery laws such as the Foreign Companies Practices Act or other applicable laws.

ABB disclosed to the US Department of Justice and the US Securities and Exchange Commission suspect payments made by employees of company subsidiaries in Asia, South America and Europe, in particular Italy.

If ABB is found to have violated any of these laws, the company could be liable for penalties and other costs and the violations could otherwise negatively impact its business.

The group said at the time it was looking into several cases of suspect payments and it was unclear whether they were linked.

swissinfo with agencies

Key facts

First-half figures:
Turnover – $13.358 billion (compared with $10.78 billion in the first half last year)
Earnings before interest and taxes (Ebit) – $1.852 billion ($1.137 billion)
Net income – $1.266 billion ($571 million)
Employees: Around 111,000 at the end of June, 2007

Asbestos

In 1990 ABB bought US firm Combustion Engineering, that had produced boilers lined with asbestos in the 1970s, despite the fact that Combustion was already facing limited asbestos litigation.

Lawsuits skyrocketed in the mid-1990s and in February 2003 Combustion filed for bankruptcy protection since its asbestos liability was expected to exceed the company’s book assets of $812 million.

ABB proposed a $1.2 billion trust fund to cover future claims, including cash and shares, but this was rejected by a court in December 2004 because of the inclusion of Lummus Global in the package.

The final settlements approved in 2006 entail costs to ABB of SFr1.43 billion in the case of Combustion Engineering and about $40 million for Lummus Global.