Rockwell Automation (ROK)

[Investorman]

Surprise Exit Of CFO Hammers Rockwell Shares
04.05.07, 5:00 PM ET


Rockwell Automation shares plunged more than 5% Friday afternoon after the company announced the sudden resignation of its chief financial officer, who was believed to be prepping the company as a takeover candidate.

James V. Gelly left to pursue other opportunities, the company said in a statement, but he will stay on board for the next few months as an adviser. Senior Vice President Theodore Crandall will serve as interim CFO until the company finds a replacement.

"I am pleased to have had the opportunity to serve as the company's CFO and am confident of the organization's great success. Going forward, I am committed to working closely with Ted and the management team to facilitate a smooth transition," Gelly said in a statement.

Calling the departure, a "surprise," J.P. Morgan analyst Stephen Tusa downgraded Rockwell from "buy" to "neutral" on Friday, with a price target of $61.53. The "lack of detail is troubling," Tusa said in a note. "There is little information about specific reasons for the change, [which] raises questions about the strategic direction of the company. We think it's prudent to take a step back and re-evaluate once we have more information around the implications of the departure."

Among analysts and investors, Gelly was highly respected for his ability to enhance cost productivity, according to Christopher Kotowicz, an analyst for A.G. Edwards & Sons. Many investors believed that Gelly was prepping the company to be a takeover candidate. His departure may indicate that the company has abandoned plans to put itself up for sale and may be poised to take on long-term investments.

"There was a negative reaction today, because Gelly was associated with the perception that the company was turning itself into an interesting target for a larger company," Kotowicz said in an interview. "It sounds like there was an internal conflict -- do we cut costs or grow the business -- and they decided to grow the business.

The major industrial automation products supplier's shares fell 5.6%, or $3.46, to close at $58.07.

Gelly, who has held senior positions at Honeywell, AlliedSignal and General Motors, joined Rockwell in January 2004. During Gelly's tenure, the stock surged more than 120%, from $35 in January 2004 to as high as $78 in April 2006, but it has floated around $60 since late 2006.