Bearing giant SKF acquires Kaydon

On Thursday, Sweden's SKF, the world's largest bearing manufacturer, announced that it will acquire Kaydon, its competitor in the United States, for US$1.25 billion in price to expand its presence in North America.

SKF said that the purchase of Kaydon's offer will begin on September 16. Once the approval of the regulatory agency, the transaction is expected to be completed in the fourth quarter of 2013.

Kaydon, headquartered in Michigan, employs 2,100 people worldwide and produces bearings, flow control products, and other specialty products. The company had $475 million in sales revenue in 2012, and the operating net profit rate for that year was 16%. Kaydon has a very strong market share in North America, which also accounts for 62% of the company’s sales revenue; Kaydon’s revenue in Europe accounts for 24% of total sales.

The transaction is expected to help SKF reduce its dependence on the European market, which accounts for 50% of its total sales revenue, and also to obtain Kaydon’s manufacturing business in North America. The transaction is expected to result in a cost synergies effect of approximately US$30 million per year; including sales revenue from the sale of Kaydon products through the SKF sales network, the expected sales synergy will be around US$50 million per year.

Based on Kaydon's closing price on September 3rd, SKF's bid offer of $35.50 per share represents a premium of 22%; this cash transaction equals Kaydon’s valuation as its interest tax rebate and shareholder 12.7 times the net profit before sales.