Zurich: Swiss engineering group ABB is to buy US industrial motors firm Baldor Electric Co for $3.1 billion to capitalise on a global push for energy efficiency and boost its North American presence.
ABB agreed to pay $63.50 a share, a 41% premium to Baldor’s closing price on 29 Nov. and an offer analysts regarded as pricey. The deal also included $1.1 billion in net debt.
“The acquisition of Baldor would make sense strategically and is therefore a welcome,” Vontobel analyst Panagiotis Spiliopoulos said in a note. “Yet the recommended purchase price is at the upper end of the economically defensible range.”
Vontobel said it retained its ‘hold´ rating on ABB but was reviewing its price target of 23.50 Swiss francs.
Shares in ABB, which makes equipment for oil, gas and utilities companies, were up 0.1% at 19.54 Swiss francs, at 0825 GMT, compared with a 0.3% firmer STOXX industrial goods and services index.
ABB expects more than $100 million in annual cost synergies and significant global revenue synergies of at least the same amount, adding that the buy would improve access to the industrial customers in North America.
ABB’s buy comes amid a busy time for deals in the energy and power sector which has been the most active for mergers and acquisitions this year with $422 billion of deals so far, according to Thomson Reuters data.
The biggest deal in the sector this year was French utility GDF Suez’s acquisition of Britis peer International Power, to create the world’s largest utility with annual revenue of €84 billion ($110 billion).
Analysts had been expecting ABB, whose products include circuit breakers and industrial robots, to do a deal given its large pile of cash. Chief executive Joe Hogan said ABB still had firepower and remained on the prowl.
“We still have excess cash,” Hogan said in a conference call for journalists, declining to give a precise figure. “So we’ll continue to look for opportunities out there.”
ABB had $5.3 billion in net cash at the end of the third quarter.
ABB said the deal with Baldor would position it to profit from an increased demand for energy efficiency, noting that industrial motors use a quarter of all electricity generated.
It said US energy efficicency legislation should drive 10 to 15% growth in the US high efficiency motors market and it expected similar regulations in 2011 for Canada, Mexico and Europe, with Australia, China and others likely to follow.
ABB said it would keep Baldor’s current management
Arkansas-based Baldor employs about 7,000 people and reported revenue of $1.29 billion in first nine months of 2010. It produces industrial electric motors as well as a range of mechanical power transmission products, drives and generators.
Baldor competes with US-listed General Electric and Regal Beloit Corp as well as Germany’s Siemens.
ABB, whose roots date back to a 19th-century company that made steam turbines, expected the transaction to close in the first quarter of 2011 and to be earnings accretive in the first year.
Earlier this year, ABB raised its stake in its Indian subsidiary and spent more than $1 billion on US software group Ventyx.
But it pulled out of bidding for British power supply systems maker Chloride after rival US suitor Emerson Electric offered a higher price.
Citigroup served as adviser on the deal to ABB while UBS advised Baldor.