SPX Corp SPW.N plans to sell its automotive service business to Germany's Robert Bosch GmbH ROBG.UL for $1.15 billion in cash to focus on its fast-growing flow technology segment, sending shares up 4.2 percent.
After the deal closes, flow equipment -- pumps, filters and other gear used in producing liquids ranging from dairy products to petroleum -- will represent more than half the diversified U.S. manufacturer's roughly $5 billion in annual revenue, with the rest coming from equipment used in power plants and industrial controls.
The company plans to use the proceeds of the sale to pay down its debt, which had risen following its December acquisition of British pump maker ClydeUnion, and to buy back shares.
Chief Executive Chris Kearney said he plans "to build out what has now become the foundation of the company, and that is the flow segment."
A number of analysts noted SPX got a good price for its business. The company said other potential auto-sector buyers had been interested.
SPX shares rose $2.81 to $69.23 in early trading on the New York Stock Exchange. Over the past year, SPX shares have fallen by 9.3 percent, while the Standard & Poor's capital goods industry index .GSPIC is up 1.6 percent.
The sale, expected to close in the first half of the year, turns SPX into a more narrowly focused power and energy company, said analyst Jeff Sprague of Vertical Research Partners.
"Given its relatively small size and new focus, it is more likely to become an acquisition target eventually," Sprague said in a note to clients.
The move comes as SPX forecasts a decline of 9 percent to 14 percent in 2012 revenue at its division that makes electrical transformers and cooling towers for power plants, due to weak prices.
The company also said last week that the just-acquired ClydeUnion business had performed poorly in the six months leading to the deal's close, so much so that it extracted a 32 percent cut to the price it paid, to about $784 million.
"While (the Bosch deal) will be reviewed as positive today, I think as we dig into it, we'll have to figure out if this is an offensive or defensive move," said Nicholas Heymann, industrials analyst at William Blair & Co in New York.
"It gives shareholders a lot more breathing room, not to have to be on pins and needles waiting on recovery in pricing for transformers," he added.
The auto tools unit represented about 15 percent of Charlotte, North Carolina-based SPX's revenue and 90 cents to $1 of forecast 2012 profit, which analysts had forecast at $5.16 per share. Based in Warren, Michigan, it provides diagnostic and repair equipment and spare parts and employs about 2,700 people, mainly in the United States, Germany, France and China.
The company had forecast the auto-tools divisions 2012 sales to be flat to up 5 percent. In contrast, SPX expects flow technology revenue to be up 33 percent to 38 percent, with the highest profit margins of all its divisions.
BUYING SHARES, PAYING DEBT
SPX expects after-tax proceeds of the deal to come to about $1 billion. It plans to use about $350 million of that to pay down debt and another $350 million to buy back shares -- about 10 percent of its $3.42 billion market capitalization at current prices.
The company withdrew the 2012 forecast it issued last week, which had been weaker than Wall Street had expected. It replaced that forecast with a "framework" that called for revenue of $5.05 billion to $5.3 billion, with segment income representing 10.9 percent to 11.4 percent of that.
It did not issue a new per-share profit target, saying that a number of variables could influence reported results.
Separately, Bosch, the world's largest car parts maker, said the acquisition would expand its market presence in the North American automotive diagnostics business.
Bosch, like other global auto parts companies, wants to focus on more profitable high-tech components, leaving more mainstream products to rivals with a lower cost base.
SPX will record an after-tax book gain of about $450 million, or $8.65 a share, following the completion of the deal.
The company competes with German engineering group GEA Group AG (G1AG.DE), U.S. conglomerate General Electric Co (GE.N) and Swiss engineering company ABB Ltd ABBN.VX.
(Reporting by Scott Malone in Boston, additional reporting by A. Ananthalakshmi in Bangalore and Nick Zieminski in New York; Editing by Lisa Von Ahn and Derek Caney)