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ABB buys Baldor Electric for $4.2bn
Published:  30 November, 2010

ABB is buying Baldor Electric to become a global leader in industrial motion. It is paying $63.50 per share for the US-based organisation, valuing the transaction at $4.2bn, including net debt of $1.1bn.

ABB says that the deal will establish it as a leader in the multi-billion dollar North American industrial motors business, and a global leader in industrial motion. It adds that the two organisations’ portfolios are “highly complementary”, combining Baldor’s leading position in North American motors with ABB’s leading position in the global drives and motors market.

The transaction will close a gap in ABB’s North American automation portfolio by adding Baldor’s Nema motors product line. Baldor will also contribute a growing and profitable mechanical power transmission business to ABB’s portfolio, based on its $1.8bn acquisition of Rockwell Automation’s Dodge and Reliance Electric businesses in 2006.

“Baldor is a great company with an extremely strong brand in the world’s largest industrial market,” says ABB CEO, Joe Hogan (above). “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.”

According to ABB, the deal coincides with a growing demand for energy-efficient motors and drives, driven by the upcoming implementation of energy efficiency regulations in the US and other markets. The deal will also allow ABB to tap the huge potential in North America for rail and wind investments, both of which are expected to grow rapidly in coming years.

ABB plans to keep the Baldor brand, its management and its Fort Smith, Arkansas, headquarters, which will become the HQ for the combined motor and generator business for North America. It is forecasting more than $100m in annual cost synergies, and global revenue synergies at least as large, with the transaction adding to its earnings in the first year.

Under the terms of the agreement, which has been approved by both companies’ Boards of Directors, ABB will commence a tender offer to buy all of Baldor’s outstanding shares for $63.50 per share in cash. The transaction represents a 41% premium to Baldor’s closing stock price on November 29.

Baldor’s board will recommend that its shareholders tender their shares in the offer, which is subject to customary terms and conditions, including the tender of at least two-thirds of Baldor`s shares on a fully diluted basis, and regulatory clearance. The deal is expected to close in the first quarter of 2011.

According to Baldor’s chairman and CEO, John McFarland (above), the transaction “is in the best interest of our shareholders, our employees and our customers. It demonstrates the value our employees have created and the strength of our brand and products in the global motors industry.

“We are excited about the opportunity to join ABB’s worldwide family,” he adds, “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 capitalise on meaningful growth opportunities in the future.” McFarland will stay with the combined business to support the integration process.

After the transaction is completed, Ron Tucker, Baldor’s current president, chief operating officer and CEO-designate, will run Baldor, including its mechanical power transmission products business and ABB’s motor and generator business in North America.

Baldor will be integrated into ABB’s Discrete Automation and Motion division, alongside its existing Motors and Generators operation. Ulrich Spiesshofer (above), ABB’s Executive Committee member responsible for the division, expects to achieve more than $200m in annual synergies by 2015, consisting of more than $100m of annual cost synergies, and at least the same global revenue synergies.

“We estimate two-thirds of these synergies will be realised by 2013,” says Spiesshofer. “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.”

Spiesshofer adds that ABB is “deeply impressed by the skill and passion of the Baldor team and their excellent customer relationships. The strength of Baldor’s people and executive team, which will continue under the new ownership, will play a key role in our mutual success.”

Baldor employs about 7,000 people and reported an operating profit of $184m on revenue of $1.29bn in first nine months of 2010. This represents an increase of 30% in operating profit and 11% in revenue over the same period in 2009.

The US market for high-efficiency motors is expected to grow by 10–15% in 2011 on the back of new regulations, which come into effect in December 2010. Similar regulations in Canada, Mexico and in the European Union are expected in 2011.

As well as industrial motors, Baldor’s portfolio includes mechanical power transmission products such as mounted bearings, gearboxes and couplings, as well as drives and generators.

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