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Regal Beloit pays $875m for A O Smith’s motors business

13 December, 2010

In the latest in a string of takeover deals in the electric motors sector, Regal Beloit is buying the motors activities of another US corporation, A O Smith. It is paying $700m in cash and $175m in shares for Smith’s Electrical Products Company (EPC), which produces motors for hermetic, pump, HVAC and industrial applications.

The deal is Regal Beloit’s seventh acquisition in 2010 (and its largest since 1980) and is in line with its aim of acquiring businesses that include energy efficiency technology, strengthen its geographic coverage and offer a synergistic fit. Regal Beloit that says that EPC’s product range complements its own. It points out that EPC has a portfolio of almost 150 patents and is a technology leader in variable-speed hermetic applications.

Ohio-based EPC employs about 7,800 people and has 20 manufacturing plants in the US, Mexico and China, as well as in Gainsborough in the UK, where it produces fractional horsepower motors. EPC reported earnings of $61.9m on sales of $539.4m in the first nine months of 2010. A O Smith now plans to focus on its water heating equipment activities which generated sales worth $1.1bn in the first nine months of 2010.

Regal Beloit’s chairman and CEO, Henry Kneuppel describes the EPC deal as “the defining acquisition” for his company. “We believe that this acquisition achieves all three criteria of our acquisition strategy,” he says. “EPC adds exciting new technologies, enhances geographic presence, and drives significant synergies.

“Furthermore,” he adds, “the transaction is expected to be accretive, excluding non-recurring items and purchase accounting adjustments, the majority of which are expected to occur in the first quarter following the close of the transaction. This transaction provides us with a more complete product and technology portfolio, which will allow us to add value for our customers.”

A O Smith’s chairman and CEO Paul Jones (above) reveals that his corporation received “strong interest from a number of companies” in the motors business, but that Regal Beloit’s offer “provided the best value for our shareholders, customers and employees.”

According to Jones, the electric motor industry “has been undergoing a significant transformation over the last several years due to global consolidation and the emergence of a number of international competitors. The consolidation in the marketplace, which has accelerated this year, prompted us to evaluate the potential sale of our motor business, with the expectation that we would reinvest the proceeds into high-growth opportunities.”

The deal is expected to close in the first half of 2011. It follows hot on the heels of ABB’s $4.2bn bid for Baldor Electric. Earlier this year, Regal Beloit acquired Australia’s CMG Engineering Group for $75m, as well as buying the Dutch motor supplier Rotor and the US-based drive and motor manufacturer Unico for undisclosed sums.

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