In a strange, roundabout kind of way, the resignation of Rockwell Automation Inc. senior vice president and chief financial officer James Gelly this week might be a good sign that the company plans to stay in Milwaukee.
That’s because the unexpected and unexplained exodus of such a prominent executive makes the company a less-attractive candidate for corporate takeover, according to one prominent Wall Street analyst.
"There has been speculation that Rockwell would be an interesting takeout candidate, and the CFO leaving might make that less likely," C. Stephen Tusa Jr., stock analyst for J.P. Morgan Securities Inc., told SBT.
When Gelly’s resignation was announced Thursday, Tusa downgraded Rockwell’s stock to "Neutral," and the stock promptly dropped $3.46 to close at $58.07.
"Gelly joined the company in 2004 and has been instrumental in communications and driving productivity and financial discipline. A lack of detail is troubling. There is little information about specific reasons for the change, and raises questions about the strategic direction of the company. We think it’s prudent to take a step back and re-evaluate once we have more information around the implications of the departure," Tusa said.
What made Rockwell a takeover candidate in the first place?
"Because the automation products here are world class, the brand name and the installed base are all very valuable and they’re not necessarily being reflected in the current stock price. They are North American-centric, so they have a lot of opportunity to grow internationally, so a big multinational taking these guys on would automatically give them more reach, more muscle to sell their products globally," Tusa said.
In its most recent quarter, 62 percent of Rockwell’s revenues came from the United States and Canada.
In other words, Rockwell’s future growth must come from overseas. And rather than build its own foreign production operations and distribution networks, the company may find it easier to become more of player overseas by latching on to a multinational corporation that already has more established footholds in India and China.
However, Gelly’s resignation gives potential suitors reason for pause. Gelly, 46, joined Rockwell in 2004 after stints at Honeywell International Inc. and General Motors Corp.
One source close to the situation said Gelly "was never really a Rockwell guy" and may have clashed Keith Nosbusch, Rockwell’s chairman and chief executive officer, who is a "Milwaukee guy," having joined the former Allen Bradley Co. way back in 1974.
Let us ponder a purely hypothetical scenario:
If Rockwell indeed was on the table to be sold, its stock would escalate. That would mean that Gelly, who owns hundreds of thousands of dollars in Rockwell stock options, would stand to gain millions through a stock run-up before the sale.
So, why would he walk away now if an offer was imminent?
That bodes well for Rockwell staying put in Milwaukee for the foreseeable future.
"I think they’re going to continue to execute on their business strategy, but the problem now with this is that when you lose a senior manager, those are the guys that set the long-term policy, and this puts a question mark over what the long-term strategy is," Tusa said. "That’s the problem we have today. We just don’t know how that’s going to change."
Milwaukee could use a few corporate assurances these days. With our hometown airline, Midwest Air Group Inc., on the apparent brink of being the victim of a hostile takeover, and with another Wall Street analyst describing our hometown bank, Marshall & Islley Corp., as an attractive takeover target this week, foreign ownership of the largest four-faced clock in the world would be a frightening scenario for this town.
Steve Jagler is executive editor at Small Business Times. He can be reached at steve.jagler@biztimes.com.
