by John Henry on Monday, Feb. 5, 2007 12:00 am
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• Click here for page 3 of the list of the biggest deals in 2006.
• Click here for the biggest bond deals in 2006.
2006 was a record year for mergers and acquisitions worldwide, but in Arkansas the M&A picture paled in comparison with 2005.
Across the country, some $4 trillion in M&A deals were announced or completed last year. But in Arkansas, there were only two deals over $1 billion, compared with seven the year before — six of which were deals by Alltel Corp., including the $9.1 billion spin-off of its wireline division and formation of Windstream Corp.
The top deal of 2006 belongs to Baldor Electric Co. of Fort Smith, which bought the power system units of Rockwell Automation Inc. of Milwaukee for $1.8 billion.
Baldor, which makes and sells electrical motors, drives and generators, said the deal would comprise $1.75 billion in cash and about 1.6 million shares of Baldor common stock, which carried a market value of $50 million at the time.
Baldor said the combined company would be "one of the leading North American manufacturers of industrial electric motors and power transmission products."
Rockwell's power systems business makes products under the Reliance Electric Co. and Dodge brand names, based in Green-ville, S.C.
"The Reliance and Dodge businesses are a great fit with our existing businesses," said John McFarland, Baldor's chairman and CEO. "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."
Baldor expects the acquisition to add $1 billion to revenue and boost earnings by about 10 cents a share in the first year. It also said that $30 million would be shaved from expenses by combining purchasing, reduced overhead and increased productivity.
The deal more than doubles the size of Baldor, which had revenue of $793 million last fiscal year; the power systems division had revenue of $1 billion.
The power systems division has 4,300 workers and 14 manufacturing facilities worldwide; Baldor has 3,900 workers and 14 factories worldwide.
The acquisition not only adds $1 billion in annual sales, but those sales would come with higher margins, according to Baldor, which also picks up a manufacturing base in China for markets in Asia, where Baldor has struggled for years to get its foot in the door.
After Baldor, Wal-Mart
The only other deal hitting the billion-dollar mark is Wal-Mart Stores Inc.'s $1 billion purchase of Trust-Mart Co. Ltd., a Taiwan-headquartered supermarket chain in China.
China has the seventh-largest retail market in the world and is expected to climb to the No. 5 spot, ahead of France and just behind Germany, by 2010, according to consulting firm Retail Forward.
With the deal, Wal-Mart passed Carrefour, the French firm, to claim the biggest food and department store network in China.
The deal comes after Wal-Mart pulled out of Germany and South Korea, but Wal-Mart has been successful in China. The company has 66 stores in China and plans to add another 18 to 20 within the year.
The sales of Wal-Mart's German and South Korean stores were nearly billion-dollar deals. Each brought close to $900 million.
Alltel Corp. took a breather after the breathtaking deals of 2005, when the Little Rock telecommunications company sealed six billion-dollar deals.
With its $6 billion purchase of Western Wireless Corp. Alltel became the fifth-largest wireless company in the United States, and with the $9.1 billion spin-off of its wireline business, it became a pure wireless operation. In the process it created another multibillion-dollar publicly traded company in Little Rock — Windstream Corp.
In March, Alltel bought from Palmetto MobileNet LP of Columbia, S.C., wireless partnerships that cover approximately 2 million people in North and South Carolina. Alltel already managed and owned 50 percent of each of the 10 partnerships and purchased the remaining interests from Palmetto. That deal came in at $456 million.
Speaking of Windstream, the company agreed in December to split off its directory publishing business, Wind-stream Yellow Pages, in a $525 million deal with affiliates of Welsh Carson An-derson & Stowe, a private equity investment firm in New York City.
Windstream said it expected to retire up to $250 million in debt and repurchase approximately 19.6 million shares of Windstream common stock valued at approximately $275 million.
Windstream Yellow Pages distributed about 9 million directories each year in 36 states and had annual revenue of about $152 million. It is based in Hudson, Ohio, and has about 450 employees.
Although not nearly as large a deal, in April publicly traded Coconut Palm Acquisition Corp. of Boca Raton, Fla., announced it would merge with Equity Broadcasting Corp. of Little Rock. The $267 million deal left Coconut Palm as the surviving corporation, but it said it would change its name to Equity Media Group Inc.
Coconut Palm Acquisition Corp. is an acquisition vehicle led by Univision Communications Inc., a Spanish-language media company. Equity owned and operated 132 TV stations in the United States and a distribution platform for Spanish-language media. The deal creates a diversified media company in broadcasting, marketing and entertainment for the 44 million Hispanics in the United States.
In the deal, Equity was to sell two television stations to Univision Television Group Inc. for $15 million.
Other major public companies in the state remained on the sidelines throughout the year. The value of numerous deals may not be announced until much later — often in an SEC document.
No doubt there were some major deals of private companies as well as mergers and acquisitions among out-of-state companies whose deals involved holdings in Arkansas.
For instance, International Paper Co., which is trying to downsize to what it thinks are its core moneymakers, has sold off forestland and mills throughout the state, including its large paper mill at Pine Bluff. Although overall price tags on those deals were released, there was no breakdown on the value of the Arkansas properties.
Allen Canning Co.'s purchase, for an undisclosed sum, of the Birds Eye Foods frozen vegetable business would appear to be a major step forward for that company. At least it's a departure from the canning business. The deal allows the company to enter the fresh vegetable business for major customers, including Wal-Mart, Royal Ahold, Kroger, Albertsons, SuperValu, Publix, Associated Wholesale Grocers, Sysco, Gordon Food Service and U.S. Foodservice.
The acquired business includes plants in Brockport, Bergen and Oakfield, N.Y.; Fairwater, Wis.; and Montezuma, Ga., that employ almost 700 people.
U.S., Worldwide Deals
Globally, there were some $4 trillion in mergers and acquisitions, driven by investors in private equity firms and relatively low interest rates, according to Thomson Financials and several others that keep track.
And analysts are speculating the aggressive trend will continue into 2007, predicting a 10 percent increase for the year. In North America, about $1.7 trillion in M&A activity occurred, up 35 percent over 2005. European mergers increased 49 percent to $1.69 trillion.
There were 31,825 deals last year, and private equity firms spent a record $725.3 billion to take companies private.
The biggest of the private equity deals was hospital chain HCA Inc.'s $33 billion agreement to go private. Apollo Management and Texas Pacific Group secured a $27.8 billion agreement to take Harrah's Entertainment Inc. private.
AT&T Inc.'s $86 billion purchase of BellSouth Corp. was the single biggest deal of 2006. The biggest bank deal of the year was Wachovia Corp's $26 billion buyout of Golden West Financial. In the pharmaceutical field, CVS Corp. forked over $21 billion to buy Caremark Rx Inc., and Johnson & Johnson bought Pfizer Consumer Healthcare for $16 billion.
Which were the big investment banks that gained the most from the M&A activity?
Goldman Sachs Group Inc. led the way with 216 global deals worth $564 billion; JPMorgan Chase & Co. came in a close second with 210 deals worth $471.74 billion, according to Thompson Financial. By the way, Goldman Sachs reported a $9.5 billion profit last year. Morgan Stanley Inc. was third at $433.31 billion; Citigroup Inc., fourth, $399.9 billion; and Lehman Brothers Holdings Inc., fifth, $383.94 billion.
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