Rockwell International Corp. said Thursday that it will buy Allen-Bradley Co. for $1.6 billion in cash, marking a major strategic commitment by the diversified Pittsburgh-based manufacturer to the industrial automation market.
The acquisition, which is Rockwell's largest in nearly two decades, was approved by the boards of both companies after sealed bids from more than a dozen firms were opened Wednesday night.
Allen-Bradley, a private and closely held firm, is poised for explosive growth in the industrial automation arena in the next five years, Rockwell Chairman Robert Anderson said Thursday at a New York press conference.
Milwaukee-based Allen-Bradley is expected to grow by at least 15% annually, but no figures are available indicating how fast the firm has been growing in recent years. Rockwell plans to form a new "core" business around the firm, Anderson said.
Grow to $20 Billion
"Our studies show that demand for highly automated factories of the future is accelerating," Anderson said. "As this nation moves forward to improve its industrial competitiveness, Allen-Bradley will be at the leading edge."
According to industry sources quoted by Allen-Bradley, the industrial automation market will grow from $5 billion this year to $20 billion in 1990. Allen-Bradley is in a niche that will grow somewhat more slowly than the overall market, but it will still outpace Rockwell's other units in growth, officials for the companies said.
Analysts say the acquisition represents a major decision and long-term commitment by Rockwell in how the firm will spend its cash reserve of about $1.3 billion, which has been built up largely in its defense business.
"Rockwell has essentially put its cards on the table as to what they are going to do with the profits from the B-1 program," said Wolfgang Demisch, an analyst at First Boston Corp. "They have made a commitment as to where the future of Rockwell is going to be after the B-1."
The Allen-Bradley deal is the largest acquisition made by Rockwell since 1967, when it acquired North American Aviation, the huge Southern California-based aerospace firm that today forms the backbone of Rockwell's defense operations.
The sealed bids opened Wednesday apparently contained other offers of more than $1 billion, including one from company management, but their exact amounts weren't disclosed. Allen-Bradley's owners put the company up for sale last October.
Standard & Poor's, a financial rating service, issued a statement saying that it would maintain Rockwell's very high double-A rating on its debt but that the deal would limit Rockwell's ability to make further acquisitions without impairing its credit quality.
Standard & Poor's estimated that Rockwell would have to borrow $650 million to consummate the purchase, an estimate that Rockwell officials did not dispute. Rockwell shares closed Thursday at $30.625, down $1.125, in trading on the New York Stock Exchange.
The acquisition comes amid a sharp rise in Rockwell's profits, largely as a result of the $20.5-billion B-1 bomber program. But the B-1 is projected to peak by 1986 and end abruptly in 1988 when the firm completes production of a planned 100 aircraft.
Thus, the Allen-Bradley deal will steer the company back toward a "better balance," Anderson said.
In 1984, Rockwell derived about 60% of its revenue from government business. If Rockwell had owned Allen-Bradley in 1984, it would have relied on military work for only 55% of its revenue, Anderson said.
Allen-Bradley, an 81-year-old company, built its business on selling mechanical switches. But in the last five years, it has targeted factory automation, acquiring 15 computer and high-technology companies.
Allen-Bradley earned $90 million on sales of $942 million in the fiscal year ended last Nov. 30.
The firm produces controllers, which are large systems for monitoring and controlling industrial processes, and is working jointly with several computer firms to develop a factory communication network. About 40% of its sales are in the auto industry.