Reinforcing Rockwell’s Successes
An expansion-minded Rockwell International Corp., armed with $3 billion or more from a possible sale of its defense and aerospace units, would be a formidable force in the marketplace if it chooses to grow through an aggressive acquisition campaign.
Logical targets for the Seal Beach-based company would be large technology-intensive manufacturing firms with operations in automated machinery, automotive parts and electronics businesses, analysts say. Those are the businesses that Rockwell would have if it sheds aerospace and defense.
Rockwell Chairman Donald R. Beall and other company executives have refused to comment on reports that the company is looking for buyers for the units, which have 23,000 employees and $3.5 billion in annual revenue.
However, Rockwell watchers suggest Beall could go after businesses operated by companies such as AlliedSignal Inc., a big auto-parts producer that has demonstrated a willingness to deal. Allied recently sold its anti-lock brake systems business.
One analyst mentioned Honeywell Inc., a $7-billion leader in automation and control equipment, as a possible candidate if Rockwell decides to look for a merger partner.
“You’ve just got to look at what they have and at their last two major acquisitions to see where they might be going,” said aerospace analyst Kent Newcomb of A.G. Edwards & Sons in St. Louis.
Rockwell acquired Allen-Bradley Co. of Milwaukee in 1985 and fast became a leader in industrial automation. It added electric motor maker Reliance Electric Co. of Cleveland last year to form one of Rockwell’s fastest-growing operations, its automation unit. The two businesses accounted for 28% of the company’s nearly $13 billion in sales last year.
Rockwell has also pumped up its semiconductor business, which has responded by quadrupling its sales and capturing a commanding lead in the telecommunications products segment of the industry.
The company has outperformed semiconductor giant Intel Corp. in that part of the industry, said analyst Wolfgang H. Demisch of investment banker BT Securities in New York. “You can expect that they would want to reinforce their successes.”
A post-defense Rockwell would be a $9.5-billion corporation concentrated in industrial automation, telecommunications, electronics and automotive and heavy-truck parts. And it would be looking for ways to increase its reach and profitability. Beall has repeatedly said he expects each of the company’s units to grow at a rate of at least 12% a year--a goal he usually achieves.
In fiscal 1995, aerospace and defense revenue dropped 5.3%. But automation revenue was up 82%; the semiconductor unit posted a 131% increase and automotive was up 11%--all keepers in Beall’s book.
Even if Rockwell eschewed cash and sold the businesses in complicated stock-swap transactions to minimize taxes, the net result, including the elimination of tens of millions of dollars in payroll and equipment maintenance expenses, would boost its bottom line tremendously.
However, not every industry specialist is wild about the idea that the company would immediately begin a buying binge.
“It is a scary notion that they would feel some need to fill the hole in revenues” left by the sale of the business units, said R. Jackson Blackstock, a conglomerates specialist with New York brokerage Donaldson, Lufkin & Jenrette Securities Corp.
The tax penalties and market premium Rockwell would have to pay “to buy something sexy in industrial automation” could dilute the value of the company’s shares, he said.
“The better course of action for them might be to focus on return. Perhaps to use the proceeds to buy up Rockwell stock and shrink the company [and operate] with a mix of business that might be rewarded” with stock that is worth more in the open market, Blackstock said.
Besides, he said, Rockwell probably let the word leak out to test investors’ reaction to the idea. And so far “the market hasn’t been wild about it,” Blackstock said.
