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Rockwell Makes Bid for Reliance Electric : Mergers: Deal would take the government contractor another step toward promising commercial ventures.


Rockwell International Corp., further abandoning its aerospace heritage in favor of growing commercial markets, Thursday launched an unsolicited bid to buy Reliance Electric Co. for $1.5 billion in cash.

The tender offer by Seal Beach-based Rockwell stunned Reliance, which had agreed in August to merge with General Signal Corp. in a $1.3-billion stock swap. Cleveland-based Reliance makes motors, drives, generators and other industrial products.

But Rockwell, already perhaps the most successful aerospace and defense firm to shift its emphasis from shrinking government work to more promising commercial ventures, did not want to lose its chance of obtaining Reliance, which would complement its industrial automation business.

A merger of the two firms is "too compelling to ignore," Rockwell Chairman Donald R. Beall said in a letter sent to Reliance Chief Executive John C. Morley on Thursday.

Rockwell generally is a cautious firm that prefers to grow from within, but its willingness to wage a hostile fight for Reliance shows how Rockwell, more than ever, views commercial markets as crucial to its growth, analysts said.

"The growth opportunities in the government market are really not visible," said Wolfgang Demisch, a veteran Rockwell analyst at BT Securities Corp. in New York. Rockwell wants to build an industrial-automation franchise "that has open-ended potential in the global economy."

Rockwell, builder of the space shuttle and the B-1B bomber, also has widespread interests in automotive parts, electronics and telecommunications equipment. Its Allen-Bradley unit, a provider of factory automation systems, has doubled its sales to $2 billion a year since 1985, and Rockwell sees Reliance, with 1993 sales of $1.6 billion, as a way to bolster Allen-Bradley's expansion around the world.

Examples of such systems are those used by major packaging and bottling firms, which fill, seal, label and box tens of thousands of products daily via high-speed conveyors and routing equipment. Allen-Bradley designs systems to precisely control those movements using computers, variable-speed drives, motors, sensors and a host of other equipment.

Such products "are not the things that have a whole lot of pizazz," Demisch said. "But they happen to be showing record sales and profits. . . ."

Indeed, Rockwell had approached Reliance about a merger in July, only to be spurned as Reliance instead struck its pact with General Signal. So Rockwell decided to come back with its cash offer of $30 a share.

"I'm sorry it worked out quite this way," Beall said in a telephone interview. He said he still hopes for "a friendly situation," but added, "Deals like this don't come along every day."

Reliance declined to comment on Rockwell's announcement. General Signal's chairman, Edmund M. Carpenter, issued a statement saying the Reliance-General Signal marriage "provides the best result for both companies."

But Wall Street will be watching to see if General Signal responds to Rockwell's bid with a higher offer. Rockwell's offer sent Reliance's common stock soaring $5.125 a share to $29.625 in New York Stock Exchange composite trading. Rockwell's stock fell 37.5 cents to $36.

Rockwell began weaning itself from Uncle Sam several years ago with the help of its last major acquisition, Allen-Bradley, which it bought for $1.6 billion in 1985. Since then, Rockwell has gotten high marks for deftly building its commercial lines at a time when contracts from the Pentagon and the National Aeronautics and Space Administration were either flattening out or declining.

For example, Rockwell is not currently producing new space shuttles or B-1 bombers, although it still garners revenue from modifying and servicing both.

Beall said that if Rockwell buys Reliance, it will depend on the U.S. government for less than 30% of its total sales.

In its fiscal year ended Sept. 30, 1993, Rockwell's profit--excluding one-time accounting changes--rose 16% from the prior year to $562 million, despite little change in sales at $10.8 billion.

Reliance, with 14,000 employees, was owned by Exxon Corp. from 1979 to 1986, when Reliance's managers took their company private in a leveraged buyout. In 1992, the firm went public with an initial public stock offering.

Besides industrial motors, Reliance makes transformers and other telecommunications equipment, a division that accounts for 27% of its sales. Rockwell said it will divest that business if it buys Reliance.

The Companies at a Glance


* Headquarters: Seal Beach

* Chief executive: Donald R. Beall

* Employees: 74,000

* Major products: Factory automation equipment, aircraft, spacecraft, avionics, electronic systems, automotive components, telecommunications and printing equipment.

* 1993 revenue: $10.8 billion

* 1993 profit: $561.9 million

* Earnings per share: $2.55

* Fiscal year ends: Sept. 30

* Thursday stock price: $36, down 37.5 cents


* Headquarters: Cleveland

* Chief executive: John C. Morley

* Employees: 14,000

* Major products: Industrial electric motors, mechanical power transmission products and specialty telecommunications products.

* 1993 revenue: $1.6 billion

* 1993 profit: $25.0 million

* Earnings per share: $0.64

* Fiscal year ends: Dec. 31

* Thursday stock price: $29.63, up $5.125

Sources: Bloomberg Business News; company reports

Researched by ADAM S. BAUMAN / Los Angeles Times

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