SPX Corporation - Divestiture Of Service Solutions To Bosch Has Finally Been Completed

| About: SPX Corporation (SPXC)

Shares of SPX Corporation (SPW) gained 0.6% in Monday's trading session. The diversified industrial manufacturer announced the completion of the sale of SPX Service Solutions to Robert Bosch GmbH for $1.15 billion.

The Deal

SPX Corporation announced on Monday that it has completed the sale of its service solution business to German-based Robert Bosch. SPX will receive a total consideration of $1.15 billion for the business, with net proceeds coming in at roughly $1 billion.

After divesting its service solution business, the company has completely exited its activities in the automotive business. SPX will now focus on the company's Flow Technology business which will remain the company's foundation and core growth engine. SPX will focus on its presence in the food and beverage business, oil & gas, and industrial markets.

CEO and Chairman Christopher J. Kearney commented on the deal, "On behalf of our Board of Directors and senior management team, I would like to again thank everyone at SPX Service Solutions for their many years of service and dedication, and take this opportunity to wish them all much future success under their new ownership."

For the first nine months of 2012, the industrial product and services division generated revenues of $669.2 million, up 7.9% on the year before. The division reported an income of $82.1 million. Full year revenues could come in at roughly $900 million, with income coming in around $110 million. The $1.15 billion deal values the division at 1.3 times annual revenues and 10-11 times earnings.

SPX will receive an estimated net proceeds of $1 billion from the sale. The company will report an after-tax gain of $450 million as a result of the deal. SPX will use roughly $350 million to repurchase its own shares and another $350 million will be used to reduce its debt position.


SPX ended its third quarter of its fiscal 2012 with $346.3 million in cash and equivalents. The company operates with $2.15 billion in short and long term debt, for a net debt position of $1.8 billion. The financial position excludes the net proceeds of $1 billion related to the deal with Bosch.

For the first nine months of its fiscal 2012, SPX generated revenues of $3.67 billion. Revenues from the flow technology business and thermal equipment operations came in at $3.0 billion. Net income for the period came in at $118.7 million, while income from continuing operations came in at $98.8 million, or $1.97 per diluted share.

Full year revenues for the remainder of the business could come in around $4 billion. Net earnings could approach $150 million, or close to $3 per diluted share.

The market values the firm currently at $3.5 billion. This values operating assets at 1.2 times annual revenues and 23-24 times annual earnings.

SPX pays a quarterly dividend of $0.25 per share, for an annual dividend yield of 1.5%.

Some Historical Perspective

Year to date, shares of SPX have risen some 14%. Shares started the year around $60 per share in January and rose to highs of $80 during the spring months. Shares fell back to levels in the high fifties during the summer and are currently exchanging hands at $68 per share.

Shares of SPX set all time highs of $140 in 2008 but fell to $30 later that year as the recession hit the industrial company hard. Shares recovered to levels in the mid eighties last year but are still trading some 50% from their all time highs.

Investment Thesis

SPX will divest quite a substantial part of its business as the industrial activities generated roughly a fifth of total revenues. The industrial activities got sold for 1.3 times annual revenues and roughly 10-11 times operating profits. This is in line with the company's overall valuation of 1.2 times revenues.

SPX will use the net proceeds of the sale to reduce leverage and increase payments to shareholders. SPX's current net debt position of $1 billion is expected to fall significantly. The company will furthermore repurchase $350 million of its own shares, roughly 10% of its own shares outstanding.

Investors are glad that the deal has finally been closed, resulting in a one-time book gain of $450 million.

I see few reasons to hold on to shares. The valuation is fair, but not that appealing. Furthermore, the dividend yield is rather limited and the business remains inherently cyclical.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.