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Inside Wall Street
A NEW ROCKET IN ROCKWELL'SPOCKET?
The Street is unsure how Rockwell International's hostile, $1.5 billion, surprise bid for Reliance Electric will play out. But some pros think the game is over. Rockwell's top brass concurs. It thinks Rockwell will edge out General Signal, with whom Reliance had agreed to merge.
This acquisition will make Rockwell--the $11 billion producer of rocket engines, automotive and automation systems, and the Space Shuttle--"a much more attractive company," says one manager at a mutual-fund investor that owns more than 1 million Rockwell shares. He notes that the stock has started moving up instead of down: from 33 to 36 since the bid was announced in late October. Usually, an acquisitor's stock sags.
The buyout would bolster Rockwell's strong, profitable Allen-Bradley electrical-products and factory-automation division, which pulled in revenues of $2 billion last year. "The acquisition would increase the company's commercial profit mix by 2% to 3%," says analyst Cai von Rumohr of Cowen & Co. The takeover would also improve Rockwell's valuation, says von Rumohr. He notes that similar outfits, such as Emerson Electric and W.W. Grainger, have p-e ratios of 14 to 15, vs. Rockwell's 11.
So von Rumohr is maintaining his buy recommendation on Rockwell, whose stock, he thinks, will hit the mid-40s sometime in the next 12 months. Reliance, with sales of $1.2 billion, is about 55% to 60% the size of Rockwell's Allen-Bradley unit. Reliance is strong in motors and drive systems, while Allen-Bradley leads in programmable controllers, sensors, and software applications, notes von Rumohr. "Their merger will further strengthen Allen-Bradley--Rockwell's most profitable unit," says one Rockwell insider.GENE G. MARCIAL