Regal Beloit to Acquire Rexnord's Process & Motion Control Unit in $3.7B Deal

Done through a Rexnord divestment and then Reverse Morris Trust transaction, it will result in forming a new major power transmission supply entity.

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BELOIT, WI and MILWAUKEE — Regal Beloit Corporation and Rexnord Corporation announced Tuesday that they have reached a definitive agreement whereby Rexnord will separate its Process & Motion Control (PMC) segment by way of a tax-free spin-off to Rexnord shareholders and then immediately combine it with Regal in a Reverse Morris Trust (RMT) transaction. Regal shareholders will own 61.4 percent and Rexnord shareholders will own 38.6 percent of the combined entity (New Regal), before a potential dividend to Regal shareholders and a corresponding ownership adjustment to Rexnord shareholders, sized at closing to ensure that RMT ownership requirements are met. Rexnord shareholders will continue to own 100 percent of the businesses' Water Management platform.

With the addition of PMC, Regal's 2020 pro forma revenue was approximately $4.1 billion with Adjusted EBITDA of $740 million, excluding $120 million in annualized cost synergies expected to be achieved by year three after closing. The pro forma 2020 EBITDA margin was approximately 18 percent.

The transaction values PMC at $3.69 billion, representing 14.2x 2020 Adjusted EBITDA, or 9.7x after factoring run-rate cost synergies. The transaction is subject to regulatory approvals, Regal and Rexnord shareholder approvals, and customary closing conditions, and is expected to close in the fourth quarter of 2021.

The transaction combines Regal and PMC's power transmission portfolios to drive innovation in industrial power transmission and motion control solutions through superior engineering, technology and manufacturing capabilities. PMC is a world-class provider of specialized, highly-engineered power transmission components and solutions, with a strong portfolio of Industrial Internet of Things solutions. The transaction expands Regal's portfolio, customer reach, and product diversity while creating shareholder value through enhanced growth and substantial cost synergies.

1200px Regal Beloit Logo svg"This transformative combination brings together two highly complementary businesses, creating a premier provider of power transmission products, poised to deliver enhanced value for our customers, associates, and shareholders," said Regal CEO, Louis Pinkham. "Combining with PMC accelerates our transformation momentum and is an important step towards our vision to accelerate profitable growth. We believe this transaction will create meaningful value for customers by providing comprehensive solutions across the entire industrial drive train, increased portfolio and reach, and an enhanced presence in diverse and attractive end markets and geographies. Shareholders will benefit from compelling value creation and financial benefits, including enhanced growth, cost synergy-driven margin expansion, attractive ROIC, and earnings accretion."

Rexnord svg"We have long admired PMC's products and capabilities, highly-regarded brands, and talented team. Importantly, Regal and PMC are a terrific cultural fit with a shared commitment to integrity, customer success, continuous improvement, and a passion to win. We are confident these shared values and complementary business structures will help facilitate a seamless transition and fuel our continued success."

Todd Adams, Chairman, President and CEO of Rexnord, commented, "This transaction provides clear and compelling value for Rexnord shareholders through ownership in a combined company with enhanced scale and significant growth opportunities. Regal is committed to investing in the continued growth of its power transmission business, and we are confident the PMC platform and team are a perfect fit to accelerate their strategy. Rexnord's Water Management business will be well-positioned to continue to drive differentiated growth as a standalone business aligned around its distinct competitive advantages and market dynamics."

Key Strategic & Financial Benefits

  • Creates a premier player in industrial power transmission with complete product portfolio across the entire drive train. The combination with PMC fills gaps in Regal's PTS portfolio, creates a more compelling partner for distributors, and enables Regal to provide complete drive train solutions across all major applications for customers. In addition, the transaction represents an attractive value proposition for both customers and end users with enhanced service capability breadth, technology content and domain expertise.
  • Improves end market diversity. Creates new avenues for growth through expanded focus outside of North America. Improves end market diversity, with increased exposure to attractive high-growth end markets including Renewable Energy, Food and Beverage, Automation, Aerospace, and eCommerce. Regal's combined portfolio is expected to be more balanced, with pro forma 2020 PTS comprising nearly 50 percent of sales, reducing cyclicality and unlocking greater portfolio flexibility.
  • Accelerates R&D and digital service capabilities. Combined R&D fuels the growth of next-generation products and faster development of value-added features through enhanced innovation and reinvestment. Provides opportunity to create world-class IIOT and digital experience with the Perceptiv™ and DiRXN® platforms, providing innovative new solutions for customers and end users.
  • Substantial cost synergies of $120 million by year three, with $70 million realized in year one. Expected synergies to be driven by procurement, distribution efficiencies, footprint rationalization, and SG&A savings. Regal plans to continue robust investment in technology and innovation.
  • Provides significant immediate and long-term value creation and financial benefits. The transaction provides attractive ROIC and is expected to be accretive to cash EPS in year one after closing. In addition, assuming the mid-point of the expected adjustment mechanism range (described below), Regal shareholders would be expected to receive a dividend of ~$7 per share. The transaction is expected to leave Regal with a strong balance sheet.
  • Unites aligned cultures with deep commitment to 80/20 and LEAN principles. Shared cultures focused on serving customers and driving efficiency. Talent infusion expected to accelerate 80/20, LEAN, IIOT, and new product development initiatives.

Governance and Locations

Upon closing, Regal will be led by its existing Board of Directors with the addition of two new directors from the Rexnord board of directors, mutually agreed upon by Regal and Rexnord. Rakesh Sachdev will continue as non-Executive Chairman of the Board. Regal's CEO, Louis Pinkham, will lead the combined corporate entity, which will continue to be headquartered in Beloit, Wisconsin.

The combined PTS and PMC business will adopt the Rexnord name and be headquartered in Milwaukee, Wisconsin. Regal expects it will continue to maintain, invest in, and grow its presence in Florence, Kentucky, which will remain a strategic site.

Rexnord Chairman, President and CEO, Todd Adams, will continue to lead the Water Management business, which plans to remain headquartered in Milwaukee, Wisconsin.

Regal Beloit Corporation is a global leader in the engineering and manufacturing of electric motors and controls, power generation, and power transmission products, serving customers throughout the world. The company is comprised of four operating segments: Commercial Systems, Industrial Systems, Climate Solutions and Power Transmission Solutions. Regal is headquartered in Beloit, Wisconsin and has manufacturing, sales, and service facilities worldwide.

Headquartered in Milwaukee, Rexnord is comprised of two strategic platforms, Process & Motion Control and Water Management, with approximately 6,400 employees worldwide. The Process & Motion Control platform designs, manufactures, markets, and services specified, highly engineered mechanical components used within complex systems. The Water Management platform designs, procures, manufactures and markets products that provide and enhance water quality, safety, flow control and conservation.

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