8/8/2019 ABB-Baldor

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BLOOMBERG

Berlin, 30 November

A BB Ltd, the Swiss mak-er of factory robots andpower transmission

gear, agreed to buy Baldor Elec-tric Co for about $3.1 billion in

cash to expand in the North American market for industri-al motors and drives.

Shareholders of Fort Smith, Arkansas-based Baldor willreceive $63.5 a share, ABB saidin a statement today. That’s41 per cent higher than Bal-dor’s closing price of $45.11

 yesterday. The deal, in which ABB will also assume an ad-ditional $1.1 billion in debt, isexpected to close in the firstquarter.

Chief Executive Officer JoeHogan has increased the paceof acquisitions as he putsZurich-based ABB’s $5.3 bil-

lion in net cash to use. He pur-chased software maker VentyxInc for more than $1 billion this

 year, and made an offer forChloride Group Plc, only to beoutbid by Emerson Electric Co.Hogan said today he still hasexcess cash and will contin-ue to seek deals.

“We see significant poten-tial for ABB to use Baldor dis-tribution to expand its drivesbusiness in the US, as well asa more general build out of its discrete automation busi-ness,” said Goldman SachsGroup analysts led by Tim Roth-ery in a note to clients today.

Cost cuts ABB rose as much as 0.17 Swissfrancs, or 0.8 per cent, to 19.69francs, and traded at 19.57francs as of 12.22 pm in Zurich.The stock has lost 1.9 per centin value this year.

Hogan is close to complet-ing a $3 billion cost-cutting pro-

gramme, and ABB said todaythat integrating Baldor will gen-erate more than $100 millionin initial annual savings. Theformer General Electric Co ex-ecutive took over at ABB in 2008

 with a track record of deal-mak-

ing, including the purchaseof UK-based Amersham Plc forabout $10 billion in 2004, thenGE’s biggest acquisition.

Hogan told journalists on acall that he had had Baldorin his sight “for a while”, andthat the two companies camein close contact over the lastsix months. There are no signsof a counter-bid for the com-pany, and ABB feels confidentit is bidding an attractive pre-mium, Hogan said.

“We’ve been looking at op-portunities for over a year now,”the executive said on the call.

Earnings boost

The average premium paid forelectrical-components compa-nies over the past five years wasabout 14 per cent, with $70.4billion of total transactions dur-ing the period, according to da-ta compiled by Bloomberg. Thebiggest deal in the period wasSchneider Electric SA’s $6.1

billion purchase of AmericanPower Conversion Corp in 2006,the data show.

Based on Baldor’s forecastearnings before interest andtax of $294 million for 2011,

 ABB is paying about 14 times

projected earnings, compared with about 16 times earningsfor the average multiple in theindustry in the last five years,the data show.

“The strategic fit looks good,but comes at a price,” said eq-uity analysts James Stettler and

 Alasdair Leslie of UniCredit ina note to clients today.

The purchase will add toearnings in the first year, andexisting management will bekept in place, ABB said. FortSmith will become the head-quarters for the combined mo-tor and generator business forNorth America.

Baldor CEO John McFar-

land, who will step down at theend of the year and be suc-ceeded by Chief Operating Of-ficer Ronald E. Tucker, said hiscompany backs the bid as be-ing “in the best interest of ourshareholders, our employeesand our customers,” accordingto the statement.

ABB buys Baldor for

$3.1 bn to bolster drives

 A file photo of an ABB plant in Hanau, Germany