Rockwell to Purchase Hiprom - Analyst Blog

Milwaukee, Wisconsin based Rockwell Automation, Inc. (ROK) will acquire Johannesburg based Hiprom, a leading process control and automation systems integrator. The acquisition is expected to close during the first quarter of 2011 pending approval of regulatory authorities in South Africa.

Rockwell Automation Systems & Solutions business unit will absorb Hiprom's management team and all its 100 employees.

Hiprom customers primarily comprise top global mining firms with precious metal and coal operations in the Sub-Saharan region. The acquisition therefore will enhance growth of Rockwell Automation's business in the Sub-Saharan region as well as broaden its presence in the global mining and mineral processing market.

The acquisition will also widen Rockwell Automation portfolio of application solutions, expertise and delivery capacity, the global mining and mineral processing market in particular.

On the other hand, Hiprom customers will have direct access to the comprehensive portfolio of products, services and solutions offered by Rockwell Automation.

We expect Rockwell Automation's sales, which experienced a whopping increase in the fourth quarter of fiscal 2010, will continue growing going forward given its wider product base as well as geographic footprint.

The Zacks Consensus Estimate for fiscal first-quarter 2011 is 87 cents per share. For fiscal year 2011, the Zacks Consensus Estimates is $4.09 per share.

The recovering economy and growing consumer demand will aid energy and commodity metal prices to climb in the long-term and in turn will call for investments in new automation projects.

The acquisition will help Rockwell Automation to capitalize on these market trends, as it is a manufacturer of industrial automation equipment, application specific integrated software and consulting design services. Also, Rockwell Automation's strong liquidly positions it well for additional capital expenditure.

In November 2010, ABB Ltd. (ABB), which competes with Rockwell Automation, entered into an agreement with Baldor Electric Company (BEZ), whereby ABB Ltd. will acquire Baldor for $4.2 billion in an all-cash transaction.

Rockwell Automation is poised for long-term growth based on its strong global market presence. This acquisition complements the company's plans of focusing on further expanding its global footprint in emerging markets.

We maintain our Outperform recommendation on Rockwell Automation. The quantitative Zacks #2 Rank (short-term Buy rating) for the company indicates upward pressure on the shares over the near term.