Baldor Electric Co. recently announced that it signed a definitive agreement to acquire the Reliance Electric Co. and certain of its affiliated companies, including the Power Systems business, of Rockwell Automation.
Baldor will purchase 100 percent 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 10 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 CEO 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.”
“I believe there is a compelling cultural and strategic fit between Baldor and our Reliance and Dodge businesses,” said Keith Nosbusch, chairman and CEO of Rockwell Automation. “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.”
The transaction is expected to add approximately $1 billion in sales with margins higher than Baldor’s, provide a manufacturing base in China for the Asian markets, and extend the company’s product line into power transmission products and larger motors.
As part of Rockwell Automation, 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. The transaction is expected to be approximately 10 cents 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 cash consideration through a combination of debt and approximately $350 million of equity or equity-linked securities.
UBS Investment Bank is acting as the sole financial advisor to Baldor in the transaction.
Power Systems is a 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.
Baldor Electric Co., headquartered in Fort Smith, Ark., had 2005 revenues of $721 million. It manufactures industrial electric motors, drives and generators.
