Professing a desire to enhance shareholder value and strengthen the investment focus on its controls business, Rockwell Automation Inc. is hanging a “for sale” sign on its Power Systems business.
The company said in a June 20 announcement that it plans to sell its Dodge mechanical and Reliance Electric motors and motor repair services businesses—operations that together account for nearly 20 percent of Rockwell’s total $5 billion revenue base.
The Dodge and Reliance businesses, headquartered in Greenville, S.C., are leading producers of mechanical power transmission products and industrial motors. Rockwell plans to retain the Reliance Electric and Reliance branded drives and related parts and service businesses. But the bulk of the businesses, which contribute about 95 percent of revenue generated by the company’s Power Systems reporting segment, is being put on the block.
Strong performance
“These are two very good businesses. They are long-standing, strong industrial franchises with leading product and service offerings,” Rockwell Chief Financial Officer James Gelly told analysts during a Webcast briefing on the proposed sale. Both businesses have produced double-digit organic growth over the past couple of years, as well as “dramatic operating margin expansion,” Gelly said. He added that the sales performance of both units has recently been boosted further by strong growth in the oil and gas, mining and other long-cycle and resource-based markets.
Milwaukee-based Rockwell is not selling Power Systems because of financial need, Gelly said. Rather, the company is separating the Control Systems and Power Systems businesses because “each deserve capital investment to fuel aggressive global growth strategies,” he said.
“We have consistently described our desire to allocate the lion’s share of Rockwell’s capital investment toward accelerating the growth of integrated architecture and intelligent motor control,” Gelly noted. “And we strongly believe this transaction is the right thing to do for both Control Systems and Power Systems.”
Drives business intact
By retaining the Reliance brand drives business, Rockwell will keep its global drives business intact, said Gelly. All drive products sold under the Reliance brand name have essentially been designed and manufactured by Rockwell’s Control Systems unit, he pointed out.
Gelly declined to speculate on a possible sale price for the Power Systems business. The timing of the sale is also impossible to predict, he said, but he suggested that analysts may want to assume a closing date during this year’s fourth quarter.
Rockwell has retained Sagent Advisors Inc., a New York-based investment banking firm, to advise on the sale process.
