Regal Rexnord Corporation Closes The Sale Of Its Industrial Motors & Generators Business To WEG

Rhea-AI Summary

Regal Rexnord announced the closure of the sale of its Industrial Motors and Generators business to WEG S.A., totaling $400 million, with plans to use the proceeds to reduce debt. The Company focuses on providing sustainable solutions for motion control and operates in various end markets.

Insights

Financial Analyst

The sale of Regal Rexnord Corporation's Industrial Motors and Generators business for $400 million is a strategic move that could reshape the company's financial structure significantly. The decision to allocate the anticipated $355 million net proceeds towards debt reduction is fiscally prudent, especially considering the current economic climate where interest rates are volatile. By focusing on repaying variable interest rate debt, the firm is looking to mitigate risks associated with rising interest rates, which could lead to increased borrowing costs. Furthermore, such a disposal allows Regal Rexnord to streamline its operations, possibly enhancing its focus on core competencies and potentially improving its operating margins over time.

Market Analyst

Regal Rexnord's disposal of an entire business segment to WEG highlights a shift in their operational focus and could indicate a strategic pivot towards sectors with stronger growth forecasts, such as automation and motion control. Given that the divested business represents a substantial part of their Industrial Systems segment, investors should observe how this restructuring might affect the company's market positioning. Investors should also note that the deferred payment structure, with 17% contingent on the transfer of the China Business, introduces an element of future cash flow variability. The company's exposure to diverse end markets with secular demand tailwinds could signal resilience and a capacity to adapt to shifting market dynamics.

Debt Market Analyst

The use of the proceeds to aggressively pay down debt is a strategic decision reflecting Regal Rexnord's commitment to financial health and could be favorably perceived by the debt market, potentially lowering the company's cost of capital in the long run. By repaying most of its variable interest rate debt by the end of 2024, Regal Rexnord is positioning itself to have a healthier balance sheet, which is typically well-received by credit rating agencies. This debt strategy could lead to improved credit ratings, which in turn, might reduce future borrowing costs and enhance financial flexibility.

MILWAUKEE, April 30, 2024 /PRNewswire/ -- Regal Rexnord Corporation (NYSE: RRX) announced today that it closed the previously announced sale of its Industrial Motors and Generators business that comprises the substantial majority of its Industrial Systems segment to certain subsidiaries of WEG S.A. (B3: WEGE3 / OTC: WEGZY).

The Company closed the transaction for total consideration of US $400 million, approximately 17% of which is deferred and will be paid upon the completion of the China Business transfer.[1] The total consideration remains subject to taxes, transaction expenses, working capital adjustments and customary post-closing adjustments. The Company anticipates that aggregate net proceeds will approximate US $355 million.

As previously disclosed, the Company intends to use the aggregate net proceeds from the transaction to reduce its debt, which in combination with deploying the majority of its forecasted 2024 free cash flow to debt reduction, should enable the Company to repay most of its variable interest rate debt by the end of 2024.

About Regal Rexnord

Regal Rexnord's 30,000 associates around the world help create a better tomorrow by providing sustainable solutions that power, transmit and control motion. The Company's electric motors and air moving subsystems provide the power to create motion. A portfolio of highly engineered power transmission components and subsystems efficiently transmits motion to power industrial applications. The Company's automation offering, comprised of controls, actuators, drives, and small precision motors, controls motion in applications ranging from factory automation to precision control in surgical tools.

The Company's end markets benefit from meaningful secular demand tailwinds, and include factory automation, food & beverage, aerospace, medical, data center, warehouse, alternative energy, residential and commercial buildings, general industrial, construction, metals and mining, and agriculture.

Regal Rexnord is comprised of three operating segments: Industrial Powertrain Solutions, Power Efficiency Solutions, and Automation & Motion Control. Regal Rexnord is headquartered in Milwaukee, Wisconsin and has manufacturing, sales and service facilities worldwide. For more information, including a copy of our Sustainability Report, visit RegalRexnord.com.

Forward Looking Statements

All statements in this communication, other than those relating to historical facts, are "forward-looking statements." Forward-looking statements can generally be identified by their use of terms such as "anticipate," "believe," "estimate," "expect," "intend," "plan," "may," "will," "project," "forecast," "would," "could," "should," and similar expressions, including references to assumptions. Forward-looking statements are not guarantees of future performance and are subject to a number of assumptions, risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from such statements. Forward-looking statements include, but are not limited to, statements about future strategic plans and future financial and operating results. Important factors that could cause actual results to differ materially from those presented or implied in the forward-looking statements in this communication include, without limitation, the possibility that the completion of the deferred transfer of the China Business may not be satisfied on the anticipated terms or timeline, the Company's ability to realize the benefits, including debt reduction, anticipated from the sale of the Industrial Motors and Generators business, and other factors that can be found in our filings with the Securities and Exchange Commission, including our most recent periodic reports filed on Form 10-K and Form 10-Q, which are available on our Investor Relations website. Forward-looking statements are given only as of the date of this communication and we disclaim any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.

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¹ Due to administrative requirements, the transfer of the Chinese subsidiaries of the Industrial Motors and Generators business (the "China Business") remains in progress and is expected to occur following the completion of certain customary local filings and transfer documentation. The Company expects the deferred transfer of the China Business will occur in mid second quarter of 2024, at which time it anticipates it will receive the portion of the purchase price allocated to the China Business.

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SOURCE Regal Rexnord Corporation

FAQ

What business did Regal Rexnord sell to WEG?

Regal Rexnord sold its Industrial Motors and Generators business to WEG.

How much was the total consideration for the sale?

The total consideration for the sale was $400 million.

What does Regal Rexnord plan to do with the proceeds from the sale?

Regal Rexnord plans to use the proceeds to reduce debt.

Where is Regal Rexnord headquartered?

Regal Rexnord is headquartered in Milwaukee, Wisconsin.