Rockwell to Spin Off Its Auto Parts Unit
Rockwell International Corp. said Monday that it will spin off its $3.1-billion automotive parts business into a publicly traded company and will concentrate on building its formidable commercial electronics businesses.
The move would rid Rockwell of a 78-year-old business founded by axle maker Willard Rockwell and complete what Chairman Donald R. Beall has called the “deconglomeration” of the company.
Once renowned as an aerospace and defense giant--the maker of the B-1 bomber and the nation’s space shuttle fleet--Rockwell no longer has any of the businesses that once formed its foundation.
Instead it has shifted its focus to the fast-growing, high-profit electronics arena. With the spinoff of its Michigan-based automotive business, Rockwell would consist of a semiconductor unit in Newport Beach; an industrial automation unit in Milwaukee; and an avionics and communications business in Cedar Rapids, Iowa.
Those three units, Beall said, should generate combined revenue of $8 billion this year, up 11%. “We will be leaner and more intensely focused,” he said.
Part of that focus would be on growing the electronics businesses, Beall said.
Seal Beach-based Rockwell has about $3 billion cash on hand after the sale last year of its commercial printing press and graphics business and its aerospace and defense units.
“We are in a very strong cash position and our primary focus now will be . . . to support these businesses through alliances and acquisitions,” Beall said.
Additionally, he said, Rockwell will continue its $1-billion stock-repurchase campaign and could use some of its cash to increase the number of shares to be purchased.
Rockwell’s stock fell slightly Monday but recovered to close at $68.125, up 25 cents in moderate New York Stock Exchange trading.
Industry analysts say the spinoff news was no surprise. “It was not a matter of if, but of when,” said Cowan & Co. analyst Jeffrey T. Sprague.
The automotive unit, with 16,000 employees worldwide, was Rockwell’s least profitable unit for several years, he said. It contributed about 30% of Rockwell’s $10.4 billion in sales last year but only 17% of its operating profit.
Although it is expected to slow this year, annual sales growth for the electronics businesses has averaged 20% for the last 5 years, compared with an 8% rate for the automotive business.
Rockwell’s automotive unit has a parts warehouse in Northern California but no other employment in the state. Its major operations are in the Midwest, Brazil, India, Asia and throughout Europe. About 60% of its sales are international.
Beall said the decision to split off the automotive business came despite “several inquiries” from other companies interested in buying the unit outright.
The proposed spinoff is expected to be completed by Sept. 30, the end of Rockwell’s fiscal 1997 year.
If approved by regulators, the move will give Rockwell shareholders one share of the new automotive company’s stock for every three shares of Rockwell stock they hold.
