In an era where corporate buyouts often benefit only the few executives at the top, the ABB-Baldor deal may be atypical.
Zurich, Switzerland-based ABB announced Nov. 29 its intention to acquire Fort Smith-based Baldor in a $4.2 billion deal expected to close in the first quarter of 2011. ABB said it will keep the corporate headquarters operation in Fort Smith, and relocate its North American headquarters to Fort Smith.
More importantly, ABB offered a $63.50 per share price for Baldor shares (NYSE: BEZ), a more than 40% premium on the Nov. 29 closing price of $45.11. Also, the buyout offer is more than 157% above the 52-week low price of $24.67.
Of the about 6,000 Baldor employees in the U.S., about 5,000 are shareholders, according to Baldor Chairman and CEO John McFarland. Baldor employs about 2,000 in the Fort Smith area, and 7,500 globally.
The Baldor Electric Co. Employees Profit Sharing and Savings Plan owned 3,578,983 shares (as of March 17), representing 7.7% of shares outstanding, which makes it the largest ownership group. The value of the employee profit sharing plan jumped from $161.447 million on Nov. 29 to $226.585 million on Nov. 30 — a 40.34% gain.
John Taylor, senior vice president of John Taylor Financial-Sterne Agee and a member of the board of directors at Fort Smith-based Benefit Bank, said the ABB-Baldor deal is likely to infuse millions of dollars into the Fort Smith regional economy. He said there could be “hundreds” of Baldor employees in the area who will see “potentially hundreds of thousands of dollars” added to their wealth because of the deal.
“The important thing is, that many of the employees’ financial stability and their ability to some day retire, improved dramatically overnight,” Taylor said. “Think about the fact that overnight they made an additional 40%” on their Baldor investments.
Although he predicts the ABB-Baldor deal with benefit the regional economy, Taylor does not expect an “immediate discernible bump” in sales tax collections or other measures of local consumer spending.
According to Baldor officials, a completed deal with ABB represents a $150 million gain among Baldor employees who own shares. With a little more than 25% of total employees in the Fort Smith area, the deal holds the potential to deliver millions of dollars from the coffers of ABB to executives, workers and families in the Fort Smith area.
It’s likely many Baldor employees have already cashed in — deal or no deal with ABB. More than 28.198 million Baldor shares were traded Tuesday, a 5,032% increase over the 65-day average volume. The shares closed Tuesday at $63.31, up $18.20 on the day and just 19 cents short of the ABB offer price.
Taylor said the fact that Baldor shares closed so near the ABB offer price suggests “the market believes the chance of this happening is close to 100%.” He also said he understands why so many people sold their shares.
“Why would you not sell your stock today and run the risk of losing all that?” Taylor said. “Unless there is a tax reason not to do it, it’s not worth hanging out there another 3 or 4 months to get an extra 25 cents per share.”
In a late Tuesday interview with The City Wire, McFarland said all Baldor employees are a “beneficiary of this transaction” because Baldor is one of the few publicly held companies that offer stock options to all employees.
“There are people right across the parking lot there that are working tonight on the line making $16 or $17 an hour that are now millionaires as a result of this transaction,” McFarland said. “That’s the impact you ought to be writing about.”
Even so, Baldor executives won’t have to soon worry about the price of steak or a good Merlot.
All 25 Baldor executives and directors owned 2,039,147 shares (as of March 17), or 4.3%, of outstanding shares. The value of that group grew from $91.985 million on Nov. 29 to $129.098 million on Nov. 30.
McFarland, who owned 479,911 shares as of March 17, saw his potential gain grow from $21.648 million on Nov. 29 to $30.383 million on Nov. 30. Not bad for an executive who began with Baldor in January 1970 as a lowly part-time hourly worker in one of Baldor’s Fort Smith plants.
Ron Tucker, the incoming Baldor CEO who owned 156,871 shares as of March 17, saw his stock value climb from $7.076 million on Nov. 29 to $9.931 million less than 24 hours later.