Regal Beloit plans $600 million of debt for Electrical Products deal

By Jennifer Lanning Drey

Savannah, Ga., Dec. 13 - Regal Beloit Corp. plans to issue $600 million of new debt as part of the permanent financing of its acquisition of the Electrical Products Co. from A.O. Smith Corp., which was announced Monday, Charles Hinrichs, Regal Beloit's chief financial officer, said during a conference call held to discuss the transaction.

The company will initially finance the transaction with $600 million using its cash and borrowings under its existing credit facilities, then move to the more permanent financing in a number of long-term markets, Hinrichs said.

"This transaction strategically deploys the cash that we have had available and starts to utilize some of our debt capacity," Mark Gliebe, Regal Beloit's chief operating officer, said during the call.

Total consideration under the terms of the deal is $875 million, which includes $700 million of cash and $175 million in shares of Regal Beloit common stock.

The pro forma company is expected to have sales of $2.8 billion, adjusted EBITDA of $424 million and combined free cash flow of $372 million.

At closing, the total debt to capital ratio is expected to be 40.4%, which is well within Regal Beloit's comfort range of a ratio between 30% and 50%, he said.

Regal Beloit has targeted synergies of $30 million to $40 million to be achieved over three to four years, Gliebe said.

"From a big picture point of view, this acquisition of EPC significantly propels us down our strategic path. It adds technology, geography and significant synergies," Henry Knueppel, Regal Beloit's chief executive officer, said during the call.

The transaction also augments Regal Beloit's presence in low-cost manufacturing locations, giving it the ability to look for consolidation opportunities, Gliebe said.

Tipp City, Ohio-based EPC's operations include motor manufacturing facilities in the United States, Mexico, China and the United Kingdom.

The companies hope to close the transaction in early 2011, he said.

Regal-Beloit is a Beloit, Wis.-maker of industrial electric motors and tools.

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