Baldor To Acquire The Power Systems Business Of Rockwell Automation, Inc.

[jOmega]

November 7, 2006

 

Baldor To Acquire the Power Systems Business of Rockwell Automation, Inc.

 

 

Baldor Electric Company (NYSE:BEZ) markets, designs, and manufactures industrial electric motors, drives and generators and is based in Fort Smith, Arkansas. Today Baldor announced that it has signed a definitive agreement to acquire the Reliance Electric Company and certain of its affiliated companies (the “Power Systems business”) of Rockwell Automation, Inc. (NYSE:ROK).

 

Baldor will purchase 100% of the 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, with a market value of $50 million, based on Baldor’s volume weighted average stock price over the prior ten trading days. The transaction is expected to be completed in the first quarter of 2007 and is subject to customary closing conditions and necessary regulatory approvals.

 

The combined company will be one of the leading North American manufacturers of industrial electric motors and power transmission products. The Power Systems business, which markets its products under the Reliance Electric® and Dodge® brand names, complements Baldor’s business in industrial electric motors, drives and generators.

 

“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 Power Systems business, like Baldor, provides the best industrial products available in the marketplace and sells them to value-minded customers.

 

“Dodge products have been available for over 125 years, Reliance motors for over 100 years and Baldor motors for over 85 years. These companies have a long history of customer preference and good profitability. Baldor, Dodge and Reliance have strong reputations in the industrial marketplace. This is a unique opportunity to build a stronger company for our customers, our employees and our shareholders.”

 

Keith D. Nosbusch, Chairman and Chief Executive Officer of Rockwell Automation said, “Baldor is a great company with an outstanding management team. I believe there is a compelling cultural and strategic fit between Baldor and our Reliance and Dodge businesses. Both organizations have similar operating philosophies and are committed to treating employees with respect, delivering high quality products and providing exceptional service to our customers. Power Systems will benefit significantly from ownership that is dedicated to investing on a global basis to create a leading motors and power transmission business.”

 

This transaction has a number of benefits and opportunities for Baldor customers, Baldor shareholders, and the employees of both companies:

 

 

Adds approximately $1 billion dollars in sales with margins higher than Baldor’s.

Provides a manufacturing base in China for the Asian markets.

Extends our product line into power transmission products and larger motors.

Enables Baldor to provide a broader product offering and services to customers.

Provides strong opportunities for synergies and cost savings in the combined businesses.

Addition of the Power Systems management team increases the strength of our management group.

Increases our manufacturing capability and flexibility.

Broadens investor interest in Baldor.

 

As part of Rockwell Automation, the Power Systems segment generated approximately $1.0 billion in revenue for the 12 months ending September 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. The transaction is expected to be approximately $0.10 accretive to Baldor’s earnings in the first full year.

 

Baldor has received a financing commitment from BNP Paribas 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 our peers as cash flow is generated and synergies are realized.

 

UBS Investment Bank is acting as the sole financial advisor to Baldor in the transaction.

 

About Rockwell Automation Power Systems Power Systems is a leading provider of Dodge power transmission products, including mounted bearings and enclosed gearing, and Reliance Electric industrial motors, including large AC and custom, variable speed and specialty, and small and medium AC motors. Power Systems has approximately 4,300 employees worldwide and 14 manufacturing facilities.

 

About Baldor Electric Baldor Electric Company is a leading manufacturer of industrial electric motors, drives and generators. Baldor is headquartered in Fort Smith, Arkansas and had 2005 revenues of $721 million. Since its founding in 1920, Baldor has had a strategy of providing the highest value in the marketplace. Baldor has approximately 3,900 employees worldwide, 14 manufacturing facilities and the highest customer preference in the industry.

 

Baldor will host a conference call to discuss this acquisition on Tuesday, November 7, 2006 at 11:00 Eastern Standard time. A live webcast of the conference call and accompanying slide presentation will be available on Baldor’s website at www.baldor.com/investors/presentations.asp in the investor relations’ news and events section. The webcast will be available for 30 days. All interested parties are invited to call into 866-558-6901 in the United States and 913-643-4197 for international callers. An audio replay of the conference call will be available from 2:00 p.m. Eastern Standard time on Tuesday, November 7, 2006 through Tuesday, November 14th, 2006 by calling 888-203-1112 in the United States and 719-457-0820 for international callers. The password for the replay is 3062245.

 

 

[jraef]

Wow, that's big news. I wonder if Baldor will assume the old Reliance VFD lines then? Probably. That was always sticking in Allen Bradley's craw.

[mariomaggi]

The transaction is expected to be approximately $0.10 accretive to Baldor’s earnings in the first full year.

 

Mistake or I cannot undertstand well?

Regards

Mario

 

[jraef]

Mistake or I cannot undertstand well?

Regards

Mario

Mario,

This is an investment term, saying that the projected earnings per share of Baldor stock will go up by 10 cents as a result of the acquisition.

[jOmega]

Wow, that's big news. I wonder if Baldor will assume the old Reliance VFD lines then? Probably. That was always sticking in Allen Bradley's craw.

 

JR... I don't know that Baldor got the Reliance Drives business..... I have some feelers out checking for an answer. W/A .....

 

The drives didn't bother Allen-Bradley near as much as the Power Transmission related products; i.e. Dodge products, motors, gear reducers, etc.

Such products were in direct conflict with Allen-Bradley's mindset/philosophy/business model; i.e., they were founded as a contols company, which to them was the higher road, so to speak.

 

Reliance's purchase by Rockwell is akin to Exxon's purchase of Reliance ...... Neither knew what they had, nor did they know what to do with what they had.

 

Reliance Electric was a great company under the leadership of Hugh D. Luke .... but went downhill after he retired and B. Charles Ames assumed the leadship post.

 

Three choruses of the Beatles' song...... Yesterday's ...... would be appropriate here....... (sniff!)

[jOmega]

jraef,

 

Sources advise that Reliance Drives were not included in the sale to Baldor.

 

From article in Milwaukee Journal Sentinel Business Section .... it is very evident that Rockwell is abandoning the comodities business and pinning its future on giving the likes of Honeywell and ABB Process Industries a run for their money.

 

In fact, one source stated that it would not be surprising to see the Reliance brand

drives become historical artifacts.

 

How sad indeed.

[CJC_PE]

The history of Reliance on their web site (reliance.com/aboutre/aboutre_english.htm) indicates that the drives business was integrated with the Allen Bradley drives business and was not part of the power systems business.

 

In November 1994, industry leaders Reliance Electric and Allen-Bradley joined Rockwell Automation, becoming the number one provider of high-performance automation products in the world.

 

A new motor plant was opened in Columbus, Nebraska in 1995. Reliance Electric and Allen-Bradley drive systems realigned to form Rockwell Automation Drive Systems.

 

[1997?]

Drives production transferred from Athens, Georgia, allowing for expanded motors production at Athens plant and greater drives’ manufacturing efficiencies in Mequon, WI.

 

[1998?]

Reliance Electric Motors joined DODGE Mechanical to form Rockwell Automation’s Power Systems Business in Greenville, SC, under the leadership

of President, Joe Swann.