DUBLIN—Eaton Corp. is shedding business units, including its hydraulics division with rubber and plastic hose operations, but keeping its acquisition pipeline full as the power management company undergoes transformational changes.
On Jan. 28 Eaton announced the sale of its hydraulics business to Nordborg, Denmark-based Danfoss A/S for $3.3 billion in a cash deal expected to close by the end of the year.
With the acquisition, Danfoss is entering the hose manufacturing business for the first time.
The deal will net Eaton about $2.85 billion after taxes, Eaton Chairman and CEO Craig Arnold said Feb. 4 during a quarterly conference call with investment bankers.
“A number of people have asked how we intend to spend the proceeds,” Arnold said. “The options of additional acquisitions and share repurchases are both on the table. For M&A, our pipeline remains very active. It’s great to have this optionality as we look forward.”
Eaton’s priorities for mergers and acquisitions will be focused on its electrical and aerospace businesses as well as electro-mobility, which Arnold said is a new space for the company that is based in Dublin but has a North American headquarters near Cleveland. To that end, Eaton recently sold its lighting and automotive fluid conveyance units and acquired three businesses, including Power Distribution Inc., which was disclosed Feb. 3.
“The acquisition provides us with additional mission-critical products for data center and industrial markets,” Arnold said of the deal to buy PDI, which generated sales of $125 million in 2019.
Overall, Eaton posted sales of $21.4 billion in 2019, which is down 1 percent from the prior year. Its net income was $452 million, down from $631 million in 2018.
Hydraulics segment sales had fallen off double digits in the last quarter to $565 million. That’s down 13 percent from 2018, caused by a drop in organic sales that Arnold attributed to continued weakness in the global mobile equipment market and de-stocking by both original equipment manufacturers and distributors.
Eaton’s operating profits for the hydraulics segment in the fourth quarter were $54 million, down 36 percent from the same period in 2018.
Eaton officials see the divestiture as way to improve overall company performance ,while Danfoss officials see an opportunity to scale its core business with another $2.2 billion in annual hydraulic sales.
“This decision is part of the ongoing transformation of Eaton into a company with higher growth, higher margins and more consistent earnings,” Arnold said. “We’re really pleased with that. We believe this transaction will create substantial value for shareholders and allow our hydraulics employees, importantly, to become part of a company with a strong commitment to the hydraulics industry.”
Eaton’s hydraulics unit will merge into the Danfoss Power Solutions unit in a move that essentially doubles the acquiring company’s business segment sales.
Danfoss CEO Kim Fausing said at the time of the announcement this type of deal does not come around often.
"We take a significant and transformational step in creating a global leader in mobile and industrial hydraulics. It is a once-in-a-lifetime opportunity to combine our largely complementary portfolios and geographic footprints," Fausing said.
Overall, Danfoss posted sales of $7 billion last year from the heating, cooling, fire safety and industrial automation markets in addition to hydraulics.