UPDATE: ABB Steep Bet Hinges On US Energy Rules, Cost Savings
01 12월 2010 - 1:22AM
Dow Jones News
ABB Ltd. (ABB) is taking a steep bet that tougher U.S. energy
regulations will spread to other major industrialized countries
such as China, as it spends $4.2 billion to buy Baldor Electric Co.
(BEZ), a 41% premium on the U.S. company's prior share price.
The Zurich-based power and industrial automation company hopes
to tap into U.S. motor efficiency legislation coming into force
Dec. 19 and mandating tougher environmental standards for
electrical motors used in industrial settings. ABB estimates more
than 1.4 million motors will be replaced in the U.S. annually as a
result. ABB expects countries such as Canada, Mexico and some
European states to adopt similar rules next year, as well as China
and Australia to eventually follow, ABB said Tuesday in a
presentation.
Measures such as motor replacement as mandated by the Energy
Independence and Security Act legislation could lower motor-driven
systems' share of industrial energy use in the U.S. by more than
10% through 2020, according to management consultant McKinsey &
Company.
The wager--ABB's priciest in a recent string of purchases under
former General Electric Corp. (GE) executive Joe Hogan--hinges on
ABB successfully wringing the $100 million cost savings from the
deal and "at least" the same in synergies from combining the two
companies, according to analysts, including Bank Vontobel and
independent brokerage Helvea.
"There is good scope for ABB to achieve these given its
excellent geographical position and strong product range,
particularly in the drives market. This will enable it to sell
Baldor products outside the United States and strengthen the
selling of ABB's existing products in the U.S.," Helvea analyst
Alessandro Migliorini said. He rates ABB stock at neutral with a
CHF21 target price.
The savings--mainly from reducing the costs of purchasing
materials--are set against roughly $50 million in costs to
integrate Baldor, which ABB will book early next year.
Under the terms of the agreed deal, ABB is paying a 41% premium
for Baldor--$63.50 a share, compared with Monday's closing price of
$45.11--or $4.2 billion in total, including $1.1 billion in net
debt.
Investors initially took to the acquisition cautiously,
according to traders because of the high price tag. At 1541 GMT,
the stock had snapped back from early losses to trade CHF0.11
higher, or up 0.6%, at CHF19.63, keeping pace with a 0.6% rise in
the Stoxx Europe 600 industrial goods index. Baldor shares surged
more than 40% in early U.S. trading.
ABB said it could continue its shopping spree, even after using
part of its roughly $5.3 billion cash pile to buy Baldor, which
bolsters ABB's position in the U.S. market for motors
considerably.
"We still have excess cash, and some people would define our
balance sheet as efficient, so we continue to look at opportunities
out there," Hogan said on a media call detailing the
acquisition.
Specifically, ABB appears to still be smarting from losing the
expensive battle for U.K.-based maker of backup power systems for
computer centers Chloride Group PLC (CHLD.LN) in July, won by
Emerson Electric Co. (EMR). The market for uninterruptible power
supply data centers is one in which ABB would like to play a larger
role through acquisitions, Hogan said.
ABB is buying Baldor, which mainly competes with Regal-Beloit
Corp. (RBC), Siemens AG (SI) and GE, as the Fort Smith,
Arkansas-based company begins to benefit from improving global
demand, after a slump in demand last year. The two companies fit
"like a glove" with little overlap in products or geographies, ABB
executive Ulrich Spiesshofer said.
This year, ABB acquired U.S.-based Ventyx, which makes software
for the energy sector, for more than $1 billion, spent about $965
million to raise its stake in its Indian subsidiary, ABB Ltd.
(India) (500002.BY) to 72% from 52%, and bought U.S. measurement
product maker K-TEK for an undisclosed price.
The deal marks ABB's splashiest purchase since it staved off
bankruptcy in 2002 under the burden of asbestos-related lawsuits
after the purchase of U.S.-based Combustion Engineering. The
acquisition of U.S.-based Combustion Engineering in 1989 and the
$1.5 billion purchase of Elsag Bailey, a Dutch maker of industrial
control systems, in 1998, rank among ABB's largest deals to
date.
-By Katharina Bart, Dow Jones Newswires; +41 43 443 8043;
katharina.bart@dowjones.com
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