Kindle’s departure over “irreconcilable differences” refuels speculation over ABB’s acquisition strategy
The share price may have recovered after the immediate 8% fall it suffered following the announcement of Fred Kindle’s departure from ABB on February 13, but staff, customers, analysts and competitors are still trying to assess the implications. Nor has their task been made any easier by the lamentable performance of chairman Hubertus von Grünberg as he insisted that while, as the company press release put it, Kindle’s departure was “due to irreconcilable differences about how to lead the company,” it was “unrelated to performance or compliance issues” and that the company’s “focus and goals have not changed.”
That didn’t prevent one Swiss journalist from telling him that he came across “as a pretty arrogant, egotistical person,” to which von Grünberg responded, “I will have to work on my style . . . I am very embarrassed about your remark.”
Most successful CEO
Former Sulzer CEO Kindle joined ABB in September 2004 and took over from Jürgen Dormann as president and CEO in January 2005. However, Dormann remained as chairman until May 2007, when he was replaced by von Grünberg, who had previously been successively president and CEO and then chairman of German tire and automotive parts group Continental.
Dormann had steered ABB back from the brink of bankruptcy after, when already chairman, he took over as president and CEO in 2002. However, Kindle is widely credited with driving ABB to its present position of strength and was described by Citibank analysts as “probably the most successful CEO in ABB’s history,” while his resignation came “during ABB’s most successful trading period.”
ABB has something of an accident prone history when it comes to CEOs, having got through six since 2000, with the last five lasting on average just a year. Kindle’s departure will be particularly unsettling for the process automation part of the business, which ARC ranks as the world number 1 in its sector, while the Control Top 50 has the company second only to Siemens in the overall world automation business. However, the automation business is still adjusting to the surprise departure last June of Dinesh Paliwal, widely tipped as a future group CEO. Paliwal would probably now be top of any headhunter’s list of candidates to fill the newly created vacancy.
Following Dormann’s departure in 2007, there had been speculation that ABB might revert to the sort of acquisition policy that got it into trouble at the end of the last century, particularly as Kindle himself had acknowledged early in 2007 that acquisitions greater than €1bn were back on the cards and that “At some stage, we have to do something useful with our money.” Since he had also said that any future acquisitions would most likely be in the automation sector, and since ABB’s cash pile has continued to mount in the interim, there has been intense speculation that it was preparing a bid for either Schneider or Rockwell Automation, with many observers, including Jim Pinto, tipping the latter as the most likely target.
In the absence of any other explanation, most observers have concluded that the most likely cause of Kindle’s departure is that the “irreconcilable differences” were not so much between Kindle and the board as between Kindle and von Grünberg, and that they related to acquisition strategy, with von Grünberg pushing for an early and headline grabbing deal and Kindle preferring to proceed on a more cautious and incremental basis. If that is the case, Kindle is likely to have had the sympathies of senior executives in the process automation business who are still bruised by and still grappling with the consequences of the acquisition spree of the late ’90s, which left it supporting a dozen different legacy DCSs. Only last March, Mark Taft, group vice president of the Process Automation Global Control Systems Business, was telling INSIDER that the last thing they needed was to acquire yet another process automation system vendor.
With the departure of Kindle, he might have to cope with just that. CFO Michel Demaré, who has stepped up to acting CEO while a successor to Kindle is sought, said that the company “will continue to examine strategic acquisition opportunities” and that the return of cash to shareholders through a share buyback which had been announced at the same time as the full year-results “will have no effect on those plans . . . We have the means for it.” Moreover, when questioned about acquisition strategy at the following day’s results press conference, he again said that “We are ready. This issue is about timing.”
So is a Kindle-less ABB more or less likely to make a major automation acquisition? Certainly the consensus among ABB watchers seems to be that von Grünberg will lean on Demaré or his permanent successor to make a move, with the prospect of an economic slowdown making that more rather than less likely. As Demaré himself said, “Last year we would have overpaid by 25% . . . a challenge today can quickly become an opportunity tomorrow.”
To soften the impact of Fred Kindle’s departure, the announcement of ABB’s results was brought forward by a day, although the main results presentation still took place the following day. However, that move only served to emphasize quite what they were losing and just how difficult he was going to be to replace. In the full year, net income more than doubled from $1.4 bn to $3.8 bn, while EBIT grew 57% to $4.0 bn and revenues by 25% to $29.2 bn. Process Automation saw EBIT grow 26% from $541 m to $683 m on revenues up 18% to $6.4 bn as its margin increased from 9.9% to 10.6%. Orders were up 21% at $7.9 bn.