$1.5-Billion Rockwell Bid Nabs Reliance From Suitor : Acquisitions: Industrial giant’s aggressive buyout is seen as a move away from shrinking aerospace and defense business.
Rockwell International finally succeeded Monday in its $1.5-billion bid to acquire Reliance Electric, a cash deal that will accelerate Rockwell’s push into the highly profitable and growing industrial automation business.
Acting with uncharacteristic aggressiveness, Seal Beach-based Rockwell wrested Reliance from another suitor, topping a bid by General Signal by $100 million. Rockwell had already won a majority of Reliance shares in a hostile tender offer, and Reliance’s board on Monday agreed to a formal acquisition under Rockwell’s terms.
The move raised hopes among some analysts that Rockwell will begin to swing its weight more forcefully and win broader recognition among investors that it is moving away from the shrinking aerospace and defense business based in Southern California.
Rockwell Chairman Donald R. Beall said in an interview that the acquisition of Reliance should not only increase the company’s earnings but also raise investors’ willingness to pay a higher share price for those earnings.
“We will not only be bigger, but we will be able to grow faster,” Beall said.
Rockwell will merge Cleveland-based Reliance into its Allen-Bradley industrial automation business, a small part of Rockwell’s diversified product lines but one that is now growing rapidly and producing significant earnings.
Allen-Bradley, which Rockwell acquired a decade ago with profits from its B-1 bomber program, posted sales growth of 22% and even higher profit growth last year, Beall said, though he declined to be more specific. Sales of Allen-Bradley, headquartered in Milwaukee, were $2.1 billion for the year ended Sept. 30.
Rockwell still ranks much smaller in the industrial automation business than firms such as Siemens, but it has leadership in most of the markets Allen-Bradley serves, particularly in so-called control logic that runs automated production systems, Beall said.
Lior Bregman, securities analyst at Oppenheimer & Co., said he believes Rockwell could reach earnings of $4 per share and a price-earnings ration of 15 within the next few years, pointing toward a stock price of $60 a share.
Rockwell shares lost 50 cents in trading Monday to close at $34.375. The company’s shares had surged to more than $44 earlier this year, but weak performance in its core automotive parts business eroded investor confidence, Bregman said.
The fight for Reliance reflects “a change in management posture,” Bregman said, contrasting with its past insistence that it did not need to make bold moves in any business sector, whether automotive or defense.
Rockwell plans to sell Reliance’s telecommunications business, which could recoup about $200 million, Bregman estimated. The operation had 1993 sales of $440 million and earnings of $15 million in the most recent fiscal year, Reliance spokesman Stephan Van Oss said.
As Rockwell strengthens its industrial automation business, as well as its commercial aircraft parts sector and its automotive lines, the firm stands ready to make significant earnings progress.
Under its agreement with Reliance, Rockwell will pay $31 for the Reliance shares. Reliance, meanwhile, will have to pay General Signal a $50-million termination fee plus $5 million in expenses--assuming the Rockwell deal is consummated. Rockwell hopes the deal will close before year’s end.
