Baldor chief: No job losses expected from ABB deal

Baldor Chairman and CEO John McFarland said Tuesday he is confident the pending purchase of Baldor by ABB will not result in job losses in the Fort Smith area.

It may be just the opposite, McFarland suggested, saying the deal could result in developments that expand the responsibilities of Baldor’s Fort Smith headquarters.

Zurich, Switzerland-based ABB — a global power and automation systems company that employs 117,000 — announced Monday (Nov. 29) the move to acquire Fort Smith-based Baldor in a deal expected to close in the first quarter of 2011. ABB said it will keep the corporate operation in Fort Smith.

McFarland, who will step down as Baldor CEO on Dec. 31 and be succeeded by Baldor COO and President Ron Tucker, addressed the media and community representatives during a 3 p.m. press conference at Baldor’s corporate headquarters.

The obvious concern in the deal is the impact on Baldor’s about 2,000 corporate and manufacturing jobs in the Fort Smith region. With the Fort Smith metro area losing more than 31% of its manufacturing jobs in the past 10 years, the concern is all the more real.

However, McFarland said the contract with ABB is “quite unusual” in that it specifies the Baldor name continue and that Fort Smith be the new headquarters for ABB’s North American operations. New Berlin, Wisc., a city of about 39,000 located between Madison and Milwaukee, is now the North American headquarters.

“We don’t believe there will be a single job lost at Baldor,” McFarland said at the press conference.

ABB PERSPECTIVE
Joe Hogan, CEO of the ABB group that bought Baldor, told investors Tuesday that the acquisition is more about generating more sales and capturing more market share than it is cutting jobs and closing facilities.

“This is a growth acquisition … overall, we’ve combined these businesses” and it is not about cutting the size of the companies, Hogan said. He added that the combination will create “a leader” in the $35 billion global industrial motion market.

Hogan, who at one time had more than $7 billion in cash to expand the footprint of ABB, will use more than $5.3 billion in cash to transact the Baldor deal without incurring debt. Also, the Baldor deal came after ABB was outbid by rival Emerson in its $1.5 billion takeover of U.K.-based Chloride — a power systems company.

In interviews with the foreign press, Hogan said the Baldor deal is not the end of the dealmaking.

In addition to giving ABB access to the North American market, the Baldor deal provides ABB with a company producing energy efficient motors that will be the new standard when new U.S. energy efficiency rules take effect Dec. 19. The United States Energy Independence and Security Act of 2007 requires many electric motors and other devices and appliances to use less electricity. Baldor has said the new motors will cost 20% more, and expects the new products to make up more than half of sales.

ABB and Baldor officials said in a joint conference call with European analysts that the U.S. market for electric motors could expand by up to 15% in 2011.

“This is really a new market for us,” in that the U.S. is still 25% of the global GDP, Hogan explained to analysts who questioned why ABB would spend $3.1 billion to acquire Baldor shares and another $1.1 billion to clear Baldor’s debt.

Also, new energy efficiency standards kick in in Europe in June 2011, with ABB expected to benefit from the Baldor R&D and experience in pushing new motors.

BALDOR CONTROL
Baldor under ABB will be in charge of North American operations for motors, drives, controls and other products and services of the “discrete automation” segment of ABB. According to McFarland, the existing senior management team at Baldor will lead ABB’s expansion in North America.

The ABB existing sales force and back office operations in New Berlin will fall under Baldor’s purview, meaning that some of the about 700 jobs there could move to Fort Smith or other Baldor locations. Also, McFarland said ABB is interested in expanding its power transmission business in the U.S., meaning future acquisitions in that segment could mean more responsibilities for the Fort Smith corporate office.

But McFarland stopped short of saying the ABB deal will add jobs, noting only that he believed it created more “job security” and “career opportunities” for Baldor employees.

The ABB deal, according to McFarland, began about a year ago when approached by ABB. At that time, Baldor shares were trading around $26, meaning the $3.1 billion equity sale now pending would have been closer to $1.5 billion.

McFarland told The City Wire that ABB deals were initially rejected, but would not discuss details. With Baldor shares climbing above $40 a share by October 2010, ABB moved with the $63.50 premium to seal the deal.

“There were some offers that were rejected,” McFarland said, adding that eventually ABB’s desire to “fill the hole” of not being in the North American market resulted in an offer the Baldor management and board had to consider.

McFarland said there were four key factors considered in making the decision: is a deal fair to employees?; will it create more employee opportunities?; will the deal allow Baldor to continue its customer demands with respect to service and new products?; and, will it be fair to shareholders?

With a more than 40% premium on the Nov. 29 closing price of $45.11 and more than 157% above the 52-week low price of $24.67, McFarland said the deal represents “a very fair price for shareholders.”

OTHER DEAL POINTS
• The pending contract between ABB and Baldor includes a $105 million “break-up provision.” The provision is meant to prevent a competing offer to acquire Baldor because it would require another potential suitor to pay $105 million more than what ABB would offer.

• With ABB having a global sales force in 100 countries, Baldor executives say the deal should also increase Baldor’s international sales volume on its existing products.

• McFarland, who will step down as Baldor CEO on Dec. 31 but remain as board chairman, will be involved in the integration of the two business operations in North America.

• The ABB-Baldor deal could also see Baldor being involved in helping ABB expand into the North American market for wind-power generator components and traction motors used in passenger railroad cars.

• The agreement does not include non-compete clauses, but does include incentives to encourage newly wealthy Baldor employees to stay with the new company.