Rockwell Automation to Divest Bearing Business

Rockwell Automation Inc. (USA; NYSE: ROK) has announced plans to sell off its two Power Systems division business units: Reliance Electric motor and motor repair, and Dodge mechanical components. Currently, Rockwell is made up of two operating divisions: Power Systems, which contributes approximately 12% of sales, and Control Systems which contributes 88% of sales. Headquartered in Greenville, South Carolina, Power Systems has total sales approaching USD $1 billion and delivers operating income of approximately $150 million. Dodge manufactures a wide variety of bearings, gears and other power transmission components. On the bearing side, it offers mounted and unmounted bearings: ball, tapered roller, spherical roller, hydrodynamic, plain sleeve and journal bearings. For mounted bearings, it offers mounted ball bearings, take-up frames, and other components. In 2004, the Dodge bearing plant in Marion, North Carolina was selected as one of IndustryWeek's Top Ten Best Plants. Opened in 1996, Marion produces 2,600 different Dodge branded mounted bearings -- spherical and tapered roller -- in IDs from 1-3/16" to 5". Rockwell was somewhat vague about the fundamental reasoning behind jettisoning Power Systems. Management attributed the decision variously to timing, an altruistic wish to see Power Systems fly free to succeed elsewhere, or generate cash for share buybacks, or for growing its other businesses. CFO James Gelly told analysts: "We're not selling Power Systems out of financial need. We're separating these two part of Rockwell because each deserves capital investment to fuel aggressive global growth strategies." Keith D. Nosbusch, President, Chairman, and CEO of Rockwell Automation, said: "Power Systems is a great business with an outstanding management team, strong domain expertise, and leading market positions. It has contributed substantially to Rockwell Automation¡¯s growth and success. In their areas of strength, the Dodge and Reliance Electric businesses are unbeatable. We believe that they will benefit from ownership dedicated to investing and globalizing to sustain their growth as the premier providers of power transmission and conversion solutions." Joseph D. Swann, Power Systems' President, said, "We are enthusiastic about the road ahead, and remain intensely focused on serving our customers, both directly and with the support of our distribution partners. We are proud of what our team at Power Systems has accomplished, and look forward to the continued growth and evolution of our business." The company did not detail what impact the transaction would have on Rockwell Automation's participation in CoLinx. CoLinx is a joint venture of Rockwell Automation, INA Holding Schaeffler KG, SKF AB, and Timken. It was set up to share and leverage the various distribution networks and related cost structures. CoLinx provides web-based services, including PTPlace.com, warehousing, and integrated logistics services for the founding companies and several others. Like Power Systems, CoLinix is also headquartered in Greenville, South Carolina. Rockwell said it does plan to retain the electronic motor control segment of Reliance Electric, apparently to support its new focus on automation systems. Rockwell shares jumped more than 5% on the news, but have since fallen back. Analysts first supported the move as taking advantage of the most favorable market for manufacturing business sellers in some time. Questions later surfaced, however, about Rockwell's direction. One analyst said: "I don't understand how jettisoning core competencies and know-how in leading market sectors, to focus on less capital-intensive operations, in industries with lower barriers to entry, is a long-term step forward." Sargent Advisors Inc. is assisting Rockwell in the sale.