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UPDATE 2-ABB pays up to $470 m to ditch solar converter business

John Revill

(Adds company comments, analyst, detail)

ZURICH, July 9 (Reuters) - ABB will pay up to $470 million to hand over its loss-making solar inverter business to Italy's FIMER SpA, highlighting the tough conditions in the solar industry where prices have fallen as demand has boomed.

The maker of units that convert direct power from solar panels into alternating current that can be fed into the electricity grid has seen sales plunge since the Swiss engineering company bought it in 2013.

Although solar power is the fastest growing source of electricity generation, equipment prices have plummeted in recent years in the face of Chinese competition and increased production.

ABB declined to say if it had attempted to sell the business before deciding to give it to FIMER but said it expected the operational EBITA margin at its electrification division to rise by more than 50 basis points after the divestment.

"The margin improvement in the future outweighs the cash impact of the transaction, said ABB spokesman Daniel Smith, who declined to comment on the business's profitability.

ABB will take an after-tax non-operational charge of approximately $430 million in the second quarter of 2019 to get rid of the business, with up to three quarters of the money being cash paid to FIMER.

An extra $40 million will come in separation costs, said ABB, with the deal due to be completed in the first quarter of 2020.

"The divestment is in line with our strategy of ongoing systematic portfolio management to strengthen competitiveness, focus on quality of revenue and higher growth segments," said Tarak Mehta, President of ABB's Electrification business.

ABB's shares fell around 2% in early trading before recovering slightly.

"Investors will be pleased that ABB has got rid of this underperforming business," said Richard Frei, an analyst at Zuercher Kantonalbank. "Although the results will suffer in the second quarter, the margins will improve in the longer term."

ABB will continue to integrate solar power into projects like smart buildings, energy storage and electric car charging, Mehta said.

FIRST MOVE

The exit is the first big move by ABB Chairman Peter Voser, the former head of oil company Royal Dutch Shell, since taking over as the Swiss company's chief executive in April.

Analysts said the divestment could be the first of several by Voser as ABB looks to streamline its operations and ditch under-performers.

ABB acquired the inverter business in 2013 when it paid $1 billion for U.S. solar energy company Power-One Inc, betting that growth in emerging markets would revive a sector ravaged by over-capacity and weakening demand.

But sales have collapsed from $743 million in 2012 to $290 million in 2018 and the inverter business became a drag on the performance of ABB's electrification business, the company's largest unit after it sold its power grids operation to Hitachi last year.

(Reporting by John Revill; Editing by Kirsten Donovan)