The owner of the Cessna brand of corporate jets and Bell helicopters, Textron Inc, will divest its Fluid & Power unit to the UK-based provider of clean energy technologies for coal fired power plants Clyde Blowers Ltd for a deal value of $645 million as it plans to exit the pump and power transmission markets, in favour of what it percieves as more profitable lines.
Textron's fluid & Power unit is part of its industrial sector, which contributed 26 per cent to Textron's sales last year. It hopes to net over $85 million after taxes for the unit that makes pumps, gears and gearboxes for the oil, mining, and construction industries.
The divestiture will be one of the largest since the company sold its fastening systems business to private equity firm Platinum Equity in 2006 for $630 million.
The current divvstiture will fetch Textron approximately $526 million in cash, a six-year note with a face value of $28 million, up to $50 million based on final 2008 operating results primarily payable in a six-year note. In addition Clyde Blowers will assume about $41 million of certain employee-benefit liabilities.
Included in the transaction is the sale of all four of Textron Fluid & Power product lines - gear technologies, hydraulics, Maag Pump Systems, Union Pump and each of their respective brands.
"This is a very positive move for both parties, as well as a great fit for our employees," said Lewis B. Campbell, Textron's chairman, president and CEO. "Clyde Blowers is gaining world-class operations with Textron's Fluid & Power group of companies, including some of the most advanced technologies, respected brands and highly talented people in their respective industries - while we continue to strategically focus our portfolio of businesses to deliver even more meaningful value growth, profitability and shareholder return."
Fluid & Power is part of Textron's Industrial segment and is projected to generate about $675 million in revenues this year. The unit will be treated as a discontinued operation beginning with third quarter 2008 reporting, which will reduce full-year 2008 earnings from continuing operations by about $0.15 per share. The transaction is expected to generate an after-tax gain of about $85 million.
After-tax cash proceeds at closing are expected to be approximately $350 million. Textron expects to apply about half of the cash proceeds from this sale to repurchasing its common shares.
This will be in addition to the company's previously announced plan to purchase up to $500 million in common shares. In total then, Textron expects to repurchase about $675 million of its shares over the next several quarters.
The combined impact of the sale of the Fluid & Power unit with share repurchases is expected to be approximately neutral to 2009 earnings per share.