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Regal and Rexnord create a power transmission giant

17 February, 2021

The US-based mechanical power transmission supplier Rexnord is merging its process and motion control (PMC) business with that of its larger rival Regal Beloit to create a new business that will adopt the Rexnord name and is expected to generate sales worth $4.5bn in 2022. The deal will take the form of a tax-free transaction known as a Reverse Morris Trust, in which Rexnord will spin off the PMC business and merge it simultaneously with Regal Beloit. It will make the PMC business worth around $3.69bn. 

Regal shareholders will own 61.4% and Rexnord shareholders 38.6% of the combined entity – known as New Regal – before a potential dividend to Regal shareholders and a corresponding ownership adjustment to Rexnord shareholders. Some $70m of cost synergies are expected in the first year, rising to $120m by the third.

The two companies say that the deal will combine their complementary portfolios to create a leading player in the industrial power transmission market with a complete portfolio across the entire drivetrain. It will fill gaps in Regal’s portfolio, expand its customer reach and product diversity, and rebalance its portfolio between power transmission (increasing from 24% to 47% of sales), motors (falling from 55% to 38%), and niche and specialty products (dropping from 21% to 15%).

The transaction is also expected to accelerate r&d and to create new avenues for growth, with an expanded focus outside of North America and an increased exposure to high-growth markets such as food and beverage, automation and aerospace.

While Rexnord’s power transmission portfolio focuses on heavier-duty applications, Regal’s strengths are in lighter-duty uses. In the couplings market, Regal offers high-performance disc couplings, while Rexnord offers general-purpose grid and gear couplings. Regal supplies right-angle worm gears, while Rexnord focuses on large parallel gear drives. Both supply mounted bearings, with Regal offering light and medium duty ball-bearing systems, while Rexnord’s portfolio includes heavy-duty roller bearing products.

“This transformative combination brings together two highly complementary businesses, creating a premier provider of power transmission products, poised to deliver enhanced value for our customers, associates, and shareholders,” says Regal CEO, Louis Pinkham, who will lead the merged business. “Combining with PMC accelerates our transformation momentum and is an important step towards our vision to accelerate profitable growth.

“We believe this transaction will create meaningful value for customers by providing comprehensive solutions across the entire industrial drivetrain, increased portfolio and reach, and an enhanced presence in diverse and attractive end-markets and geographies,” he adds. “Shareholders will benefit from compelling value creation and financial benefits, including enhanced growth, cost synergy-driven margin expansion, attractive ROIC, and earnings accretion.”

“Regal and PMC are a terrific cultural fit with a shared commitment to integrity, customer success, continuous improvement, and a passion to win,” Pinkham declares. “We are confident these shared values and complementary business structures will help facilitate a seamless transition and fuel our continued success.”

Rexnord and Regal Beloit say that combining their power transmission portfolios will allow them to offer complete drivetrains

“This transaction provides clear and compelling value for Rexnord shareholders through ownership in a combined company with enhanced scale and significant growth opportunities,” adds Rexnord’s chairman, president and CEO, Todd Adams. “Regal is committed to investing in the continued growth of its power transmission business, and we are confident the PMC platform and team are a perfect fit to accelerate their strategy.”

The transaction is expected to close in the fourth quarter of 2021, and the combined business will be headquartered in Milwaukee, Wisconsin. Upon closing, Regal will be led by its existing board of directors with two new directors from Rexnord. The combined business will continue to be headquartered in Beloit, Wisconsin. Regal expects to maintain, invest in, and expand its presence in Florence, Kentucky, which will remain a strategic site.

Regal Beloit manufactures electric motors and controls, power generation, and power transmission products. It has four operating segments: commercial systems; industrial systems; climate systems; and power transmission. Its power transmission brands include SealMaster, Modsoft, Morse, Kop-Flex, Grove Gear, Hub City, Jaure, Browning, System Plast and McGill.

Rexnord has two strategic platforms – process and motion control, and water management – and employs about 6,400 people worldwide. Its brands include Centa, Falk, Tollok, Link-Belt, Berg, Stearns, and Highfield.

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Regal BeloitTwitter  LinkedIn  Facebook

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