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Swiss Giant ABB Engineers Takeover Of Baldor Electric With Avalanche Of Cash

Posted  February 8, 2011

The Antitrust Division of the U.S. Department of Justice has given the green light to Swiss engineering giant ABB’s multi-billion-dollar acquisition of the American industrial motors firm Baldor Electric Co.

This regulatory approval paves the way for ABB’s $4.2 billion, or $63.50 per share, all-cash purchase.  The purchase price was a 41% premium over the November 29, 2010, $45.11 closing price of Baldor shares, the day ABB announced the $4.2 billon offer.  Since then, the management of both companies have approved the transaction.

In general, hype surrounding ABB’s acquisition of Baldor has been positive.  Leading up to the takeover, leaders of both companies touted business efficiencies of the combined company, how Baldor as an ABB subsidiary would not be laying its U.S. workforce, and how the premium share price paid by ABB to acquire Baldor has the potential of making millionaires of many Baldor employees overnight.  Despite the fanfare, the companies’ path to the deal did face obstacles.  In particular, the scruples of both companies were assailed.  In the end, however, either the attacks lacked substance or the attackers couldn’t withstand the companies’ willingness to settle with anyone who might get in the way of their deal.

In recent years, ABB has been on an acquisition bender.  Baldor is the seventh – and largest – company ABB has acquired since May 2008.

Though U.S. antitrust regulators green-lighted ABB’s acquisition of Baldor with minimal consternation, ABB’s dealings have kept other U.S. regulators busy.  On September 29, 2010, while ABB and Baldor were engaged in merger talks, the SEC announced that it had filed a “settled civil action” against ABB, charging the company with violations of the Foreign Corrupt Practices Act.  Specifically, the SEC alleged that ABB 1) bribed Mexican officials to obtain business with government-owned power companies; and 2) paid kickbacks to the former regime in Iraq to obtain contracts under the U.N. Oil for Food program.   According to the SEC, the bribery in Mexico resulted in contracts that generated $90 million in revenues and $13 million in profits for ABB, while the Iraqi kickbacks resulted in contracts that generated $13.5 million in revenues and $3.8 million in profits.

Without admitting the allegations, ABB settled with the SEC for $39.3 million.  In related criminal proceedings, ABB reached a settlement with the Department of Justice to pay $19 million in criminal penalties.

When Baldor and ABB announced the takeover, not everyone’s reaction was as upbeat as the companies’ respective boards.  On November 30, 2010, the day after Baldor disclosed the terms of its takeover by ABB, an Arkansas shareholder filed a class action lawsuit alleging that Baldor’s board breached its fiduciary duty by failing to obtain a price that reflected Baldor’s true value.  Two similar actions were filed in St. Louis.  Publicly, Baldor and ABB maintain that the lawsuits are entirely without merit.  Yet, reprising a favorite play, by December 29, 2010, Baldor and ABB entered into a Memorandum of Understanding with plaintiffs from the three lawsuits that contemplates settlement by February 2011.

With the various lawsuits disposed of, or almost disposed of, business proceeds as usual.  By January 26, 2011, ABB had purchased more than 89% of Baldor’s common stock.  Soon ABB intends to acquire the remaining Baldor shares at which time ABB will delist Baldor from the New York Stock Exchange.

Tagged in: Antitrust Enforcement, International Competition Issues,