Regal Beloit Corporation (RBC Quick QuoteRBC - Free Report) along with Rexnord Corporation yesterday provided another update on their pending business combination deal signed in February 2021. This is the fourth update so far this month.

Before discussing further, it is worth noting here that the deal between the companies 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 gained 3.72% yesterday, closing the trading session at $148.45.

Inside the Headlines

As noted, the parties estimate the exchange ratio to be 0.2230 for the deal, implying that shareholders of each share of Land Newco will have the right to receive 0.2230 shares of Regal Beloit. The exchange of shares will result in the acquisition of Land Newco by Regal Beloit. For further information refer to “September announcements” given below.

Also, Regal Beloit’s special cash dividend, to be paid to its shareholders, is estimated to be $6.99 per share. The record date for the special cash dividend has been set at Oct 1 and the payment date for the same has been fixed at Oct 5.

The above-mentioned exchange ratio and special cash dividend are estimates and might be subject to changes by the companies involved in the deal.

A brief discussion on earlier announcements is provided below:

September announcements: On Sep 17, 2021, the parties involved announced that Rexnord will initially distribute 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 5.

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.

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 #3 (Hold). The company anticipates benefiting from strengthening end markets and margin improvements in 2021. Interest expenses, any disruptions from the supply chain and COVID shutdowns are concerning.

In the past three months, the company’s shares have gained 12% compared with the industry’s growth of 0.3%.

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.