Rockwell Sells Unit for Good Price
We have been favorably disposed toward Rockwell Automation (ROK), which has reported decent sales growth and its factory automation products appear well suited to the current need for improved manufacturing efficiency. The company is also cleaning up its balance sheet:
Baldor Electric Co agreed to acquire the power systems business and assets of Rockwell Automation Inc for $1.8 billion in cash and stock. Baldor Electric Co will pay $1.75 billion in cash and about $50 million in stock. The power systems business sells its products under the Reliance Electric and Dodge brand names. The deal is expected to close in the first quarter of 2007.
According to the recent earnings report:
Power Systems fourth quarter sales were $264.9 million, an increase of 15 percent compared to sales of $231.1 million in the 2005 fourth quarter. Segment operating earnings were $41.6 million, an increase of 87 percent compared to $22.2 million in the fourth quarter of 2005. The increase in segment operating earnings was attributed to higher volume, productivity, net price, and lower restructuring charges somewhat offset by inflation. Power Systems return on sales was 15.7 percent in the fourth quarter of 2006 compared to 9.6 percent in 2005.
Sales for the full year were $1,010.1 million, an increase of 15 percent compared to $879.6 million in 2005. Segment operating earnings were $162.6 million, an increase of 47 percent compared to $110.3 million in 2005. Power Systems return on sales for the year was 16.1 percent compared to 12.5 percent in 2005.
The unit comprised just over 18% of the company’s sales in FY06 but only 4% of segment operating income. The sale values it at 15% of the company’s enterprise value, which seems to us like a solid price.
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[…] No new position named, and there can’t be much of one if Gelly has time available to advise his former employer. It is also somewhat uncomfortable that Gelly is leaving just after the company received $1.7 billion for the sale of a large division. That money needs to be put to use, and typically the CFO is instrumental in such decisions. At the time the unit was sold, we said “The unit comprised just over 18% of the company’s sales in FY06 but only 4% of segment operating income. The sale values it at 15% of the company’s enterprise value, which seems to us like a solid price.” We still believe that, as we have noted before, if ever there was an industry poised to do well in today’s economic environment, Rockwell (factory automation) is in it. However, the stock has sinced bounced along going basically nowhere, and today’s news doesn’t offer much comfort. […]