Baldor Electric Sold to Swiss Company ABB in $4.2 Billion Deal

by Gwen Moritz and Lance Turner  on Tuesday, Nov. 30, 2010 6:53 am  

Baldor CEO John McFarland said he's confident the combined operation will be "well positioned to capitalize on meaningful growth opportunities in the future."

Baldor Electric Co. of Fort Smith will be sold to Swiss power and technology company ABB in a deal valued at $4.2 billion, the two companies announced early Tuesday morning.

Under the terms of the agreement, unanimously approved by both companies' boards of directors, publicly traded ABB (NYSE: %%ABB%%) will pay $63.50 per share in cash. That represents a 41 percent premium over Monday's closing price for Baldor stock (NYSE: %%BEZ%%).

The deal, set to close in the first quarter of 2011, will put ABB in the U.S. for the first time. ABB said it will retain the Baldor brand, the company's Fort Smith headquarters and its management.

The announcement marks the biggest deal involving an Arkansas-based company since the sale of Alltel to Verizon announced in June 2008. 

Baldor, which makes electric motors and drives, is the seventh-largest publicly traded company in Arkansas by revenue, with $1.52 billion in sales in 2009 and $1.95 billion in 2008. It employs about 7,000 people in various locations in the U.S., Canada, England, Mexico and China.

The ABB Group of companies operates in about 100 countries and employs about 117,000 people. The company offers power and automation technologies for utility and industry customers to improve performance but lower environmental impact. 

Distribution, Efficiency

Baldor is particularly attractive to ABB because of its U.S. presence and its energy efficient motors.

The companies said the deal will enable ABB to penetrate the North American industrial market through Baldor's long-established distribution channels. And Baldor's energy efficient products will be in demand as new energy efficiency regulations come online in the U.S. and other markets.

ABB CEO Joe Hogan, a former CEO of the General Electric Co., told reporters in a conference call early Tuesday that he'd had Baldor in his sight "for a while." In a company video, he said the deal "helps us to balance our portfolio dramatically" by establishing a strong U.S. presence and fills gaps in the company's product lines.

"This is a new day for ABB in North America," he said.

McFarland to Aid Transition

"We are very pleased that ABB will locate its motor and generator business headquarters for North America in Fort Smith and we are confident that the combined global platform will be well positioned to capitalize on meaningful growth opportunities in the future," Baldor's retiring CEO, John McFarland, said in a news release announcing the deal.

McFarland will stay on "to support a successful integration," according to the announcement. Ronald E. Tucker, Baldor's current president and COO and designated successor to McFarland, will run Baldor, including the mechanical power transmission products business and ABB's motor and generator business in North America after the transaction is completed.

(Also: See how much Baldor executives' shares are now worth after Tuesday's bid.)

The purchase comes as Baldor is seeing increased demand, more revenue and better margins. In October, the company reported an "all-time record" operating margin during the third quarter, and its net income doubled compared with the same period in 2009. At the time, McFarland predicted further margin expansion in 2011.

In the third quarter, the company earned $25.7 million, or 54 cents per share, up from $12.6 million, or 27 cents per share, a year earlier. Total sales rose 19 percent to $453.73 million.

For the first nine months of 2010, Baldor reported an operating profit of $184 million on revenue of $1.29 billion. The company said those numbers represented an increase of 30 percent in operating profit and 11 percent in revenue over the comparable period in 2009.

McFarland announced his retirement in August, saying he planned to step down Dec. 31 but would remain executive chairman of the company's board. Tucker was named successor.

The deal is the latest among recent acquisitions and offers for ABB. In May, the comany purchased software maker Ventyx Inc. for more than $1 billion. In January 2009, it acquired all interests in the Finnish joint venture Ensto Busch-Jaeger Oy from Ensto Oy. It also made an offer for Chloride Group Plc, but was outbid by Emerson Electric Co.

More

According to the Wall Street Journal, the deal comes as ABB bets that tougher U.S. energy regulations will spread to major industrialized countries, including China.

New York Times Dealbook blog says the deal marks a shift for ABB from "engineering-oriented focus" to "a more market-oriented focus."

 

 

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