McFarland: ABB-Baldor deal a ‘difficult decision’

What first began with a December 2009 phone call, wrapped up — somewhat — on Wednesday (Jan. 26) with more than 42.415 million shares of Baldor Electric Co. tendered to Zurich, Switzerland-based ABB.

“Tomorrow is my last day as (Baldor) chairman,” John McFarland, Baldor board chairman and CEO, said during a Wednesday (Jan. 26) speech before the Fort Smith Rotary Club.

ABB announced Nov. 29 the move to acquire Fort Smith-based Baldor in an all-cash $4.2 billion deal, or $63.50 per share. At the time, the share price offer was a 41% premium over the Nov. 29 closing price of $45.11. The $4.2 billion also included about $1.1 billion in debt from Baldor’s November 2006 acquisition of the Dodge and Reliance subsidiaries of Rockwell Automation.

The Baldor board unanimously agreed to the deal, and ABB said it will keep the corporate operation in Fort Smith.

The ABB Group is a global manufacturer of electric motors, drives, power system components, circuit breakers, switches and numerous other devices used in power and automation systems. The company operates in 100 countries and employs 117,000.

Baldor, a maker, designer and marketer of industrial electric motors, motor drives, power transmissions and generators, employs between 7,000 and 7,500 in 26 plants in five countries and sales offices serving more than 80 countries. About 2,000 are employed in the Fort Smith area.

On Wednesday (Jan. 26), the two companies reported that 89.38% of all shares had been tendered, and ABB would pursue a “short-form merger” to acquire the remaining shares. Although the legal details required to finalize the transaction will take another few weeks, Baldor is essentially now a subsidiary of ABB.

The process began Dec. 16, 2009, when ABB CEO Joe Hogan called McFarland to inquire about the possibility of an acquisition. They met for lunch in Fort Smith a few days later. In January 2010, when Baldor shares hovered between $25 and $30, ABB offered $36 per share — which would have been roughly a $2.8 billion deal.

Baldor’s board rejected the deal.

“They went away for a little while, and then they came back,” McFarland explained during the Rotary speech.

After rejecting several more offers, ABB came forward with the $63.50 per-share deal, which resulted in a “difficult decision for the board to make,” McFarland said. He said the Baldor board and management team took a lot of pride in their history of independence, but also knew that an offer reflecting more than a 40% premium would be hard to reject.

“The thing was, could we look a shareholder in the eye and say, ‘We turned down a billion dollars in value and we think that it’s in your best interests’?” McFarland said Wednesday in explaining that the Baldor board ultimately had a duty to do what was in the best interests of the shareholders.

Because a little more than 5,000 of Baldor’s 6,000 U.S. employees are shareholders, the deal directed more than $400 million to those 5,000-plus employees.

“Right now, there are employees on the manufacturing floor with $1 million in their account, and they have worked here for many years making $16 or $17 an hour,” McFarland said.

With the company estimating that at least 2 million Baldor shares are owned by people living in the Fort Smith region, the deal could inject $127 million into the regional economy.

McFarland also reiterated his belief that no jobs will be lost in Fort Smith as a result of the deal. He said ABB has agreed to allow Baldor to operate as a subsidiary and maintain Baldor’s profit-sharing plans, stock option plans and other personnel, benefit and compensation plans Baldor had in place prior to the acquisition.

When asked if jobs might come to Fort Smith, McFarland was cautious in his answer, saying that not all details have been worked out. He did say that with Fort Smith being the North American headquarters of ABB’s motors and generator division, “additional responsibilities” will come to Fort Smith.

“We would expect that there could be additional announcements later on,” McFarland said.

McFarland, a Fort Smith native who began working for Baldor more than 41 years ago as a part-time employee distributing Baldor sales literature, said he is confident the deal will ultimately prove beneficial for the employees and the Fort Smith region.