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Baldor completes Rockwell acquisition to take 25% of North American market

15 February, 2007

Baldor has completed its acquisition of Rockwell Automation`s Power Systems division — consisting of the Dodge mechanical, and Reliance motors and repairs, businesses. The $1.8bn deal more than doubles Baldor`s size and makes it the largest supplier of electric motors in North America, holding around a quarter of the market. The combined business will account for about 8% of the global motors market.

The former Rockwell businesses will add 4,300 employees to take Baldor`s total workforce to around 8,200. It is also gaining 14 new plants in China, Mexico, Canada and the US, doubling its tally to 28 sites.

According to John McFarland, Baldor`s chairman and chief executive, the two businesses fit together well. "The combination is clearly the market leader in the US, not only in size but in many other ways," he told financial analysts after the deal closed.

"Baldor`s strength is in small industrial motors, and Reliance`s strength is in large industrial motors," says McFarland. "The acquisition also brings us Dodge, the premier provider of power transmission products in North America.

"These products make us a more important supplier to our customers and allow us to offer a broader product range," he adds, pointing out that Reliance`s operating margins have been higher those at Baldor.

Another attraction for Baldor is that the merged operation should be more resistant to changes in the market. "We believe that the combined businesses are less cyclical than either one is separately," says McFarland. "Dodge power transmission products have been less cyclical in the past, while large Reliance motors are involved in many long-term projects.

"Baldor`s business," he adds, "is evenly split between distributors and OEMs. As a result, we believe, the combined businesses are better positioned to handle economic cycles."

By the end of the third year, Baldor expects to achieve $30m in annual pre-tax savings from synergies between the combined businesses.

The Rockwell Power Systems acquisition follows a successful year of trading for Baldor. "Sales, earnings and earnings per share set all-time records in 2006," McFarland reports. "Sales of $811m and earnings of $48m both increased 12% over last year." (By comparison, the newly-acquired Power Systems operation produced just over $1bn of revenue for Rockwell last year — about 20% of Rockwell`s total income of $5.1bn.)

Baldor`s large and high-efficiency motors operations had a particularly good year during 2006. "We continue to see strength in Premium efficiency motors, and motors over 60hp (45kW), with both product lines growing at more than double the rate of the overall business," McFarland says. Overall, Baldor`s motors sales rose by 16% and its drives sales by 4% during 2006, while sales of high-efficiency machines soared by around 40%.

Like other motor manufacturers, Baldor has been hit by the dramatic increases in copper and steel prices over the past couple of years. Although copper prices have fallen in recent months, they are still "way above" where they have been in recent years, says McFarland.

He hopes that the combined buying power of the Baldor and Reliance businesses will help to "equalise" raw materials prices. He also reveals that Baldor has also been redesigning some of its motors to provide the same performance while using less copper and steel than previous designs.

Baldor has drawn up a three-year plan to integrate the acquired businesses and has begun to look at how the sales forces will be combined. "We are starting to combine Baldor and Reliance motor businesses at many levels," McFarland reports, adding that details will emerge in a few months` time.

"Going forward we have an opportunity to really improve our drives business," McFarland predicts. Previously, Reliance has obtained its variable speed drives from Rockwell, but these will now be supplied by Baldor.

Baldor intends to use Rockwell`s Chinese motor factory to produce motors for the Asian market, starting with small machines and then expanding to larger motors.

McFarland reports that so far, customer reaction to the acquisition has been "very positive". He adds that as Baldor has got to know more about the acquired business, there have been "no negative surprises — all the surprises have been positive".

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