ABB Set to Acquire Baldor Electric Co. for $4.2 Billion

Includes: ABB, BEZ
by: Zacks Investment Research

ABB Ltd. (NYSE:ABB) and Baldor Electric Company (BEZ) have entered into an agreement, according to which ABB will acquire Baldor for $4.2 billion. This will be an all-cash transaction and includes net debt of $1.1 billion. The acquisition is expected to close in the first quarter of 2011.

ABB will be purchasing all the outstanding shares of Baldor through a tender offer of $63.50 per share, valued at 41% premium to Baldor’s closing share price as of November 29, 2010. The transaction was agreed upon by the Board of Directors of both the companies.

The inclusion of Baldor’s strong NEMA motors product line to ABB’s product portfolio and leverage from Baldor’s leading market position in industrial motors will aid ABB to overcome the loopholes in its automation portfolio in North America.

ABB also benefits from Baldor’s expanding and lucrative mechanical power transmission business. ABB’s vast distribution network will help Baldor business to expand globally.

Baldor management and brand name will be maintained by ABB and the Fort Smith headquarters of Baldor will become ABB’s motor and generator business headquarters for North America. The merger is expected to provide $100 million annual cost synergies and global revenue synergies of atleast the same amount.

The increasing demand for energy-efficient motors favors the long-term prospects of ABB. Baldor’s high-efficiency motors will benefit ABB significantly as the U.S. market for these motors is expected to grow 10% to15% in 2011.

ABB Ltd. is a Zurich (Switzerland) based power and automation technology company. The company operates in approximately 100 countries structuring its global organization into five regions: Europe, Americas, Asia, the Middle East and Africa. A major competitor of ABB is Siemens AG (SI).

Baldor Electric Company is a manufacturer of energy-efficient, industrial electric motors. The company also manufactures adjustable-speed drives, generators and power transmission equipment. The company sells its products to both distributors and original equipment manufacturers (OEM) through a network of independent sales representatives and Baldor sales personnel. Major competitors of Baldor are AO Smith Corp. (NYSE:AOS), Bodine Electric Company and Regal Beloit Corporation (NYSE:RBC).

We have a Zacks #3 Rank (short-term Hold rating) on ABB Ltd. as well as Baldor Electric.