NORBORG, Denmark—Danfoss A/S now says a $3.3 billion deal for Eaton Corp.'s hydraulics business might not close until 2021.
The Norborg-based company sees the transaction as a way to dramatically increase its presence, both in terms of sales and geographic reach. When the two sides revealed the purchase in January, they expected the process to be finished by the end of this year.
The to-be acquired assets include both rubber and plastics hose operations and allows Danfoss to grow in such a way not otherwise possible.
"We have long tried to figure out how we can become bigger in certain areas. For instance, we have not tried to get into the industrial market, that's not just something you can do just organically," Eric Alstrom, Danfoss Power Solutions president, said in a video posted to the company's LinkedIn page. "You have to do it through acquisitions. We have always been interested in conveyance—hoses and fittings. But, certainly, it's nothing you can just start doing from scratch."
Acquiring Eaton's hydraulics business, the company has said, will be transformational and add another $2.2 billion in annual sales.
"This is not a synergy story. This is a growth story. We now have almost twice the amount of salespeople (and) almost twice the amount of engineers. We now will be able to provide all of our customers with a better service, a better product portfolio and just, in general, also better global geographic presence than we've had in the past," Alstrom said.
Something Danfoss cannot do right now is figure out exactly how the new organization will look as both sides are prohibited from talking to one another until the deal goes through, he said.
So Danfoss is taking what the company calls a "business as usual" approach until that point and even for the foreseeable future after that.
"Immediately following closing, it's going to be a little tricky for a while. First, we have to agree upon one organization: What do we look like as Eaton Hydraulics and Danfoss Power Solutions come together?" Alstrom said. "How do we ensure that we serve our customers just as well as we've done before coming together so that customers see an absolutely flawless change from two companies into one new entity?
"But, after that, we will also look at other things such as how do we extend our product portfolios and what is the strategic direction of the company going forward," he said. "We're not in a position to speak to one another yet, but after closing we can."
Once both sides have the chance to really communicate, Danfoss will craft a strategic direction for the combined operation.
CEO Kim Fausing said making the deal for Eaton Hydraulics is a key part of the company's vision.
"We are on a growth journey and a fundamental part of our strategy is building leading positions in our core business. And in Danfoss, hydraulics is core business. It's core of the core. Having the hydraulics business of Eaton and Danfoss now joining forces is a major milestone in our Going Great (growth) strategy," he said during the video.
"Together we will become a global leader in mobile and industrial hydraulics, committed to investing in the future and our long-term success. So we will continue to invest in innovation and technology leadership to stay a strong partner to our customers and distributors and also to harvest the growth opportunities," Fausing said.
Eaton's $2.2 billion hydraulics business posted earnings before interest, taxes, depreciation and amortization of $250 million and has about 11,000 employees. And Danfoss is paying a healthy 13.2 earnings multiple for the business.
The hydraulics business includes a wide variety of equipment and systems to serve a vast array of industrial and mobile applications.
While there are many components to hydraulic systems, rubber hoses are key in helping hydraulics do their job, whatever that job might be. Those hoses must withstand high pressures that allow hydraulic fluids to create equipment movement. Other aspects of hydraulics include pumps, motors, valves, controls and cylinders.
While Danfoss sees an opportunity to scale-up its core business, Eaton sees a way to improve overall performance.
Eaton CEO Craig Arnold previously said the sale "is part of the ongoing transformation of Eaton into a higher growth company with better earnings consistency. … We believe this transaction will create substantial value for our shareholders and allow our hydraulics employees to be part of a company that has a strong commitment to the hydraulics industry."
While Eaton is selling off the hydraulics business, the company is keeping a rubber-related unit that has been housed in that segment—golf grips. Eaton also is keeping a filtration business that was part of the unit.
Golf Pride brand grips calls itself the world's largest maker of golf club grips.
The hydraulics business being sold to Danfoss represents about 10 percent of Eaton's overall sales.
