Baldor to get a piece of Rockwell’s action
Baldor Electric Co. has signed a definitive agreement to acquire the Reliance Electric Co. and certain of its affiliated companies from Rockwell Automation for $1.8 billion. These constitute Rockwell’s Power Systems business, which markets products under the Reliance Electric and Dodge brand names. These brands complement Baldor’s business in industrial electric motors, drives and generators, and gives Rockwell Automation stock in Baldor. Click here to read “ For sale: mechanical, motor businesses. ” Rockwell purchased Reliance in 1994 for $1.6 billion.
Baldor Electric Co. is a leading manufacturer of industrial electric motors, drives and generators headquartered in Fort Smith, AR, and had 2005 revenues of $721 million. Baldor has approximately 3,900 employees worldwide, 14 manufacturing facilities, and claims the highest customer preference in the industry. When completed, the transaction advances Baldor’s capabilities among North American manufacturers of industrial electric motors and power transmission products.
Baldor will purchase 100% equity interest in the Power Systems business for $1.8 billion, comprised of $1.75 billion in cash and approximately 1.6 million shares of Baldor common stock (market value of $50 million). The parties expect to complete the transaction (subject to customary closing conditions and necessary regulatory approvals) during first-quarter of 2007.
“The Reliance and Dodge businesses are a great fit with our existing businesses,” said John McFarland, chairman and chief executive officer of Baldor. “The Power Systems business will complement and add strength to Baldor’s product line.”
The transaction provides a number of benefits and opportunities for Baldor customers, Baldor shareholders, and employees of each. Specifically, it:
Extends the Baldor product line into power transmission products and larger motors;
Enables Baldor to offer customers a broader range of products and services;
Increases the combined manufacturing capability and flexibility;
Provides strong opportunities for synergies and cost savings in the combined businesses;
Provides a manufacturing base in China for Asian markets;
Adds approximately $1 billion dollars in sales with margins higher than Baldor’s existing business;
Broadens investor interest in Baldor.
The Power Systems segment generated approximately $1.0 billion in revenue for the 12 months ending Sept. 30, 2006. Baldor expects to realize annual pre-tax synergies of approximately $30 million within three years mainly from the benefits of combined purchasing, working capital management, reduced overhead, and increased productivity. Baldor expects the transaction to add approximately $0.10 its earnings in the first full year.
Investment banker BNP Paribas has agreed to support the transaction and expects to finance the $1.75 billion dollar cash consideration through a combination of debt and approximately $350 million of equity or equity-linked securities. Upon completion of the transaction, total debt is expected be approximately $1.5 billion. Leverage ratios are expected to decline significantly over the next three years to be in line with peer businesses as the new entity generates cash flow and synergies are realized.
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