UPDATE 6-ABB to buy Baldor Electric for $3.1 billion

* Says deal to be earnings accretive in first year

* Deal valued at $4.2 bln, incl. $1.1 bln in net debt

* Analysts say deal is expensive

* Baldor jumps 40 pct, ABB shares flat

* A.O. Smith, Regal-Beloit shares higher in U.S. trading
(Adds U.S. analyst comment, background, updates shares)

By Catherine Bosley

ZURICH, Nov 30 (BestGrowthStock) – Swiss engineering group ABB
(ABBN.VX: ) is to buy U.S. industrial motors firm Baldor Electric
Co (BEZ.N: ) for $3.1 billion to capitalise on a global push for
energy efficiency and boost its North American presence.

ABB agreed to pay $63.50 a share, a 41 percent premium to
Baldor’s closing price on Nov. 29 and an offer analysts
regarded as pricey. Under the deal, ABB also assumes $1.1
billion in net debt.

Baldor shares jumped 40 percent in early New York trading
to $63.24, just below the offer price.

“The acquisition of Baldor would make sense strategically
and is therefore welcome,” Vontobel analyst Panagiotis
Spiliopoulos said in a note. “Yet the recommended purchase
price is at the upper end of the economically defensible
range.”

Shares in ABB, which makes equipment for oil, gas and
utilities companies, were down 0.1 percent at 19.51 Swiss
francs, at 1456 GMT.

ABB expects synergies to yield more than $200 million
annually to earnings before interest, tax, depreciation and
amortisation (EBTIDA) by 2015. A deal termination fee was set
at $105 million.

The deal gives Baldor an enterprise value of about 11.1
times estimated 2011 EBITDA, a “steep valuation” compared to
ABB’s own EV/EBITDA ratio of 7.3 times, ING analyst Axel
Funhoff said in a note.

ABB’s buy comes as takeover activity is picking up globally
as firms look to expand amid limp economic growth, with the
value of deals so far this year already exceeding last year’s
$2 trillion, according to Thomson Reuters data.

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For graphics on global M&A: http://r.reuters.com/kyb46q

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MORE BUYS AHEAD?

ABB said the deal with Baldor would position it to profit
from an increased demand for energy efficiency, noting that
industrial motors use a quarter of all electricity generated.

New rules for energy efficiency go into effect next month,
requiring buyers to choose an energy-efficient motor for
certain applications. With the new models commanding a higher
price, the rules effectively act as a price increase.

ABB said U.S. energy efficicency legislation should drive
10 to 15 percent growth in the U.S. high efficiency motors
market and it expected similar regulations in 2011 for Canada,
Mexico and Europe, with Australia, China and others likely to
follow.

Analysts had been expecting ABB, whose products include
circuit breakers and industrial robots, to do a deal —
possibly in automation or in the United States — given its
large cash pile.

Chief Executive Joe Hogan said ABB remained on the prowl.

“We still have excess cash,” Hogan said in a conference
call for journalists, declining to give a precise figure. “So
we’ll continue to look for opportunities out there.”

ABB had $5.3 billion in net cash at the end of the third
quarter. Baldor will fit into ABB’s automation portfolio, which
makes up about half of group revenues.

ZKB analyst Richard Frei said he thought ABB was now quite
well covered in automation, but that it might have some blind
spots in other markets. “Maybe the focus will go more in the
direction of power, though I wouldn’t exclude smaller
acquisitions in automation,” he said.

Earlier this year, ABB raised its stake in its Indian
subsidiary and spent more than $1 billion on U.S. software
group Ventyx. [ID:nLDE64404U]

But it pulled out of bidding for British power supply
systems maker Chloride after rival U.S. suitor Emerson Electric
(EMR.N: ) offered a higher price. [ID:nLDE660025]

TARGETING U.S. MARKET

ABB said it would keep the current management of Baldor,
which employs about 7,000 people and reported revenue of $1.29
billion in first nine months of 2010.

Fort Smith, Arkansas-based Baldor gets about 80 percent of
its sales from the United States in markets like mining and
farming. The 90-year-old company also makes makes generators,
drives and mechanical power transmission components.

Baldor, whose rivals include General Electric (GE.N: ) and
Regal Beloit Corp (RBC.N: ) as well as Germany’s Siemens
(SIEGn.DE: ), paid $1.8 billion in 2007 for Rockwell Automation’s
(ROK.N: ) power systems business.

“ABB has never been able to get into the North American
market with small motors, and Baldor basically delivers that,”
BB&T Capital Markets analyst Holden Lewis said. Regulatory
hurdles are unlikely for the deal, he said.

Lewis added that a company like Siemens may now want to
“take a good hard look” at Regal-Beloit, since one avenue into
the U.S. motors market is closed.

“It does raise scrutiny for anyone who wants to get into
the small motors business,” Lewis said.

Regal-Beloit shares jumped 4.8 pct to $61.08. A.O. Smith
Corp. (AOS.N: ) rose 3.9 percent to $38.53.

ABB, whose roots date back to a 19th-century company that
made steam turbines, expected the deal to close in the first
quarter of 2011 and to be earnings accretive in the first
year.

Citigroup (C.N: ) served as adviser on the deal to ABB while
UBS (UBSN.VX: ) advised Baldor.
($1 = 0.7606 euro)
(Additional reporting by Quentin Webb in London, Nick
Zieminski in New York; Editing by Dan Lalor, Hans Peters, Dave
Zimmerman)

UPDATE 6-ABB to buy Baldor Electric for $3.1 billion