Regal Beloit Corporation , on Sep 17, announced an update on its pending deal with Rexnord Corporation . This is the third update so far this month.
Before discussing the announcement, it is worth noting here that the deal between the companies was signed in February 2021 and calls for the combination of Regal Beloit’s operations with Rexnord’s Process & Motion Control (“PMC”) segment. The transaction has been valued at $3.69 billion.
Regal Beloit’s shares declined 3.18% on Sep 17, closing the trading session at $142.66.
Inside the Headlines
Per the terms agreed upon, Rexnord will initially distribute the shares of Land Newco, Inc. to its shareholders in the form of a pro-rata dividend. Land Newco is a wholly-owned subsidiary of Rexnord and is the owner of its PMC business. The record date of the pro-rata dividend is fixed at Sep 29, 2021, and the payment date is set at Oct 4.
The above-mentioned process will result in the spin-off of Land Newco. Post this, Regal Beloit will acquire Land Newco in a stock transaction, which, in turn, will become its wholly-owned subsidiary. Also, Regal Beloit will reward its shareholders with a payment of a special cash dividend for which the record date has been set at Oct 1. The payment date for the same has been fixed at Oct 15.
As the transaction gets completed, shareholders of Regal Beloit will own their shares and will receive special cash dividend payments. Then again, Rexnord shareholders will own their shares and that of Regal Beloit — obtained as part of the Land Newco stock merger.
A brief discussion on earlier announcements is provided below:
September announcements: On Sep 13, 2021, the parties involved announced that they anticipate completing the deal on Oct 4. The consummation, however, is still subject to the fulfillment of closing conditions or waiver of the same.
Upon completion, Regal Beloit will be renamed as “Regal Rexnord Corporation”, while it will trade on the NYSE under the symbol “RRX”. Rexnord will be known as “Zurn Water Solutions Corporation” and its stock’s trade symbol on the NYSE will be “ZWS”.
On Sep 1, 2021, Regal Beloit received shareholders’ approval for the issuance of common shares. Also, the company’s shareholders approved to make changes in the company’s Articles of Incorporation. This will enable it to change its name and increase authorized shares.
August announcement: Regal Beloit announced planned changes to its power transmission business, which is subjected to the closing of the above-mentioned deal. The company intends on grouping its power transmission business — including its existing Power Transmission Solutions (“PTS”) segment and Rexnord’s PMC segment — under the Motion Control Solutions (“MCS”) segment. The MCS segment will be led by Kevin J. Zaba and its president, Integration will be Jerry Morton. While Zaba is currently capacitated as the president of PMC, Morton is the current president of PTS.
Rationale of the Deal: The transaction is anticipated to boost Regal Beloit’s product line and enhance its position as a major provider of power transmission solutions. The transaction will also strengthen its market presence and shareholder value. As noted, within three years of the completion, the deal is likely to generate cost savings of $120 million for Regal Beloit. Adjusted earnings before interest, tax, depreciation and amortization are expected to be $1 billion for 2022.
Post the deal completion, Regal Beloit’s shareholders will own 61.4% of the combined entity (“New Regal”), while the rest 38.6% will be owned by Rexnord’s shareholders.
Zacks Rank, Estimates and Price Performance
With a market capitalization of $5.8 billion, Regal Beloit currently carries a Zacks Rank #2 (Buy). The company anticipates benefiting from strengthening end markets and margin improvements in 2021. It expects adjusted earnings per share of $8.70-$9.00, suggesting growth of 53% (at the mid-point) from the previous year’s reported number. Sales are expected to grow in the high-teens on a year-over-year basis.
In the past three months, the company’s shares have gained 9.9% compared with the industry’s growth of 3.6%.
Image Source: Zacks Investment Research
Meanwhile, the Zacks Consensus Estimate for its earnings is pegged at $8.81 for 2021 and $9.85 for 2022, reflecting growth of 12.5% and 13.9% from the respective 60-day-ago figures. Earnings estimates for the third quarter are pegged at $2.34, increasing 21.9% from the 60-day-ago figure.