ABB, Zurich, Switzerland, long a major player internationally in power systems, drives and industrial motors, has nonetheless struggled to gain a significant foot-hold in the North American industrial market. Last week, though, ABB announced a move that may give it what it’s been seeking — a purchase that will give it much greater leverage in the multi-billion dollar North American industrial motors business and position it as a global leader for movement and control in industrial applications.
The company has been on a buying spree — or attempted buying spree — over the past year, armed with a multi-billion-dollar fund of cash. ABB was successful in its acquisition of Ventyx Systems in May, a move that bolstered ABB’s offerings in network management software for smart grid applications, but it lost a billion-dollar bidding war for U.K.-based UPS giant Chloride Systems to Emerson Electric in July.
This week, ABB found acquisition success again and moved to vastly increase its presence in industrial markets with an agreement to buy the largest industrial motor manufacturer in the U.S., Baldor Electric Co., Fort Smith, Ark. The deal will be an all-cash transaction valued at approximately $4.2 billion, including $1.1 billion of net debt.
ABB will begin a tender offer to purchase all of Baldor’s outstanding shares for $63.50 per share in cash, a 41 percent premium to Baldor’s closing stock price on Nov. 29. The Baldor board of directors agreed to recommend that Baldor shareholders tender their shares, and the deal is expected to close in the first quarter of 2011, subject to customary terms and conditions, including the tender of at least two-thirds of Baldor’s shares and regulatory clearance.
The transaction closes a gap in ABB’s automation portfolio in North America by
adding Baldor’s NEMA motors product line and positions the company as a market leader for industrial motors, including high-efficiency motors. Baldor also adds a growing and profitable mechanical power transmission business to ABB’s portfolio.
The transaction will substantially improve ABB’s access to the industrial customer base in North America, opening opportunities for ABB’s energy-efficient drives and complementary motors.
This move comes at a time when regulatory changes in the United States and other parts of the world are expected to accelerate demand for energy-efficient industrial motion products, ABB said in the release announcing the deal. The acquisition will also enable ABB to tap the huge potential in North America for rail and wind investments, both of which are expected to grow rapidly.
The U.S. market for high-efficiency motors is expected to grow 10 to 15 percent in 2011 on the back of new regulations, effective in December this year, ABB said. Similar regulations in Canada, Mexico and in the European Union are expected in 2011.
“Baldor is a great company with an extremely strong brand in the world’s largest industrial market,” said Joe Hogan, ABB’s CEO. “Baldor’s product range and regional scope are highly complementary to ours and give both companies significant opportunities to deliver greater value to our customers.”
“We are excited about the opportunity to join ABB’s worldwide family as we have always respected ABB. 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,” said John McFarland, Baldor chairman and CEO, who will stay with the combined business to support the integration.
Ron Tucker, Baldor’s current president and COO, and CEO designate, 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. Baldor employs approximately 7,000 people and reported an operating profit of $184 million on revenue of $1.29 billion in first nine months of 2010. This represents an increase of 30 percent in operating profit and 11 percent in revenues over the comparable period in 2009.
“ABB and Baldor will be able to offer our North American and global customers an unparalleled range of high-efficiency industrial products and services to help them meet their new demands,” said Ulrich Spiesshofer, the executive committee member responsible for ABB’s Discrete Automation and Motion division, into which Baldor’s business will be integrated alongside the existing Motors and Generators business. “We expect to achieve over $200 million in annual synergies by 2015, consisting of more than $100 million annual cost synergies and at least the same global revenue synergies. We estimate two-thirds of these synergies will be realized by 2013.
“We intend to build on Baldor’s excellent North American position to sell energy efficient drives, larger motors and generators. Together, we will accelerate the expansion of Baldor’s mechanical power transmission product portfolio into the global process automation market using ABB’s strong channels in this sector.”
Citi served as financial advisor to ABB and UBS Investment Bank served as financial advisor to Baldor.