Rockwell Automation (ROK)

[Investorman]

New ABB Boss Could Seal Some Deals
Lionel Laurent, 07.17.08, 8:35 AM ET

LONDON - Swiss power transmission company ABB is glad to have finally found a new chief executive in the form of General Electric's healthcare boss, Joseph Hogan. But news of his arrival also stirred up excitement over capital goods stocks on Thursday--with their attractive valuations, analysts think there could be deals in the pipeline.

"Joseph Hogan has a history of doing acquisitions," said James Stettler, analyst with Dresdner Kleinwort. He told Forbes.com that ABB's previous chief executive, Fred Kindle, had held off from big buys because valuations were not yet attractive. That story now seems to have changed.

Investors anticipating future deals pushed up shares in ABB's peers, during afternoon trading on Thursday. France's Schneider Electric jumped 6.3%, Legrand rose 7.6%, and Austria's Zumtobel was up 14.2%, in Frankfurt. ABB's own shares rose 3.8%, to 28.74 Swiss francs, in Zurich.

Dresdner Kleinwort's Stettler was doubtful that ABB would buy a company of Schneider Electric's size--it is worth over $27.0 billion--but Milwaukee, Wisc.-based Rockwell Automation might be an interesting target. The $6.3 billion firm would offer expansion in a specific area, robotics automation, that Hogan himself was historically involved in at General Electric.

A spokesman for ABB would not comment on any specific acquisition targets, but told Forbes.com that the company's acquisition strategy "could contain larger companies," as well as smaller firms. He added that ABB's chairman had given a tentative price range earlier this year of $500.0 million-$1.5 billion for acquisitions, and that the company had a total cash pile of $5.0 billion available.

ABB said it had settled on Hogan as its new chief executive on Thursday, five months after Fred Kindle stepped down over "irreconcilable differences on how to lead the company." (See "CEO Departure Leaves ABB In The Dark.") Analysts noted that another piece of good news was that Kindle's temporary replacement, chief financial officer Michel Demare, would stay on as CFO.

"I think it's good that Michel Demare, the CFO, remains with the company and in the same role," said Magnus Axen, analyst with Evli Bank. He said that investors would be looking for stability and continuity, rather than a spending spree that could prove difficult to integrate.