Rockwell to Spin Off Its Auto Parts Division
Rockwell International Corp. said Monday it will spin off its $3.1-billion automotive parts business into a separate publicly traded company and will concentrate on building its formidable commercial electronics businesses.
The move rids Rockwell of a 78-year-old business founded by axle-maker Willard Rockwell and completes 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 business 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 will consist of a semiconductor unit in Newport Beach, an industrial automation unit in Milwaukee, Wis., and an avionics and communications business in Cedar Rapids, Iowa.
Those three units, Beall says, should generate combined revenue of $8 billion this year, up 11%. “We will be leaner and more intensely focused,” he said Monday in an interview.
Part of that focus will 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 automotive spinoff was no surprise. “It was not a matter of if, but of when,” Cowan & Co. analyst Jeffrey T. Sprague said.
The Michigan-based automotive unit, with 16,000 employees worldwide, has been Rockwell’s least profitable business line 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% over 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 automotive unit outright. He said there was never any serious discussion of selling it.
The proposed spinoff is expected to close by Sept. 30, the end of Rockwell’s 1997 fiscal year. If approved by regulators, the move would give Rockwell shareholders one share of the new automotive company’s stock for every three shares of Rockwell International stock they hold. Sprague estimated the market value of the automotive unit at about $1.8 billion. Rockwell said it hopes the new company’s stock will trade on the New York Stock Exchange.
The new company will change its name. Rockwell, which gets a onetime special dividend of $400 million, will not be a shareholder.
Rockwell’s transformation began in 1973, when the company--then a major government defense and aerospace contractor--bought the Collins Radio Co. “with an eye toward building a commercial electronics franchise,” Beall said.
The next big move came in 1985, when Rockwell acquired factory automation equipment maker Allen-Bradley Co. for $1.6 billion, adding $1 billion in sales to its electronics business. At the same time, the company was expanding its semiconductor business, which had begun as a maker of modems for facsimile machines in 1978. Rockwell’s most recent major addition to its electronics business came in 1995 when it spent $1.6 billion to buy automation equipment maker Reliance Electric Inc.
The company immediately began shopping for buyers for pieces Beall and others in top management felt no longer fit. It sold its graphics unit to an investment group for $600 million in May 1996. And at the end of the year it sold its defense and aerospace units to Boeing Co. for $3.2 billion.
When the Boeing sale closed, Beall said, Rockwell was left with two distinctly different business units: automotive components and commercial electronics.
Automotive “was clearly a misfit once Rockwell started emphasizing electronics,” said Anthony Ginsberg, an industry analyst with Fourteen Research in New York.
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Rockwell’s New Era
Rockwell International’s spinoff of its automotive products division leaves the company with a core of three businesses to focus on the worldwide electronics market:
Automation
* Projected 1997 revenue: $4.5 billion
* Headquarters: Milwaukee
* Operations: 71 plants and activity in 74 countries
* Product mix: Electric motors, power and motion control devices, sensors and software for industrial automation
Semiconductor Systems
* Projected 1997 revenue: $1.8 billion
* Headquarters: Newport Beach
* Operations: Manufacturing in Newport Beach, Colorado Springs and Mexicali, Mexico
* Product mix: Fax and personal computer chip sets, advanced semiconductor devices
Avionics and Communications
* Projected 1997 revenue: $1.7 billion
* Headquarters: Cedar Rapids, Iowa
* Operations: Manufacturing in Cedar Rapids, Richardson, Texas, and Melbourne, Fla.
* Product mix: Communications, navigation and flight control systems, satellite-based air traffic management systems
ROCKWELL AUTOMOTIVE DIVISION
In spinning off its automotive division, Rockwell rids itself of a huge division:
* Headquarters: Troy, Mich.
* President: Larry D. Yost
* Total employees: 16,000
* 1996 sales: About $3.1 billion
* Heavy Vehicle Systems: Drive-train components and systems for heavy- and medium-duty commercial trucks, trailers, buses and off-highway vehicles
* Light Vehicle Systems: Golde sunroofs, Fumigalli wheels, ROR trailer axles and Rockwell-WABCO anti-lock truck brakes; also makes doors, locking systems, electric motors, seat adjusting systems and suspension systems
* Manufacturing operations: Iowa, Kentucky, Michigan, Ohio, South Carolina, North Carolina, Tennessee and Wisconsin
* Foreign research and manufacturing: Australia, Brazil, Canada, China, Czech Republic, France, Germany, India, Italy, Japan, Korea, Mexico, Spain, Turkey and the United Kingdom.
Source: Rockwell International Corp.
