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Rockwell Automation (ROK), Honeywell International Inc. (HON): Mergers, Spinoffs and Activism Make This Industry an Interesting One

Industrials with diversified operations, or more commonly known as multi-industry companies, have lately been grabbing a lot investors attention as many companies have been subject to activities like spin-offs, mergers and activism from major shareholders. The same theme echoed in presentations of these companies at Electrical Product Group (EPG) Conference.

Rockwell Automation (NYSE:ROK)This is the norm in a recessionary economy when companies tend to seal deals that help them consolidate their strengths (mergers/acquisitions) and get rid of their weaknesses (spin-offs). Those who don’t anything in such circumstances become a target of activism.

Let’s have a look at some important companies in this industry that have been making the headlines:

A big deal?

Rockwell Automation (NYSE:ROK) reportedly signaled earlier this month (May) that it was warming to the idea of doing a sizable deal. CEO Keith Nosbusch was asked about this a day before the EPG Conference whether he was baited into making his bullish statement. Notably, he did not slam the door on the idea of future wheeling and dealing, although he did offer this caveat: “The only way we will make a large acquisition is if it makes financial and strategic sense.”

Hence, he left the door slightly ajar. Later, CFO Ted Crandall cracked it open a bit further by adding: “We would be willing to use the balance sheet if we thought that there was a larger acquisition that made sense.”

There are, of course, a couple of interesting options that could involve Rockwell Automation (NYSE:ROK). First, there has been talk it might be interested in making a move for all or parts of Invensys, a British engineering and information technology company. One advantage of doing something with Invensys is that it would allow Rockwell to put its overseas cash to use. Another Rockwell-related move that warrants a refresh involves Swiss engineering giant ABB. It was a year ago that ABB CEO Joe Hogan said he had no plans to bid on Rockwell Automation (NYSE:ROK), but Hogan surprised investors this month by saying he would step down once a successor was found.

For now, the street is keeping Rockwell Automation (NYSE:ROK) on the “suitor” list. Talking about valuations, the stock is only up 5% since the start of the year. The stock is trading at an average multiple of 14 times earnings. The Street expects the company to achieve double-digit growth in earnings per share (EPS) through 2013. The company also plans to go big in China where it believes that a huge opportunity still lies ahead.

Were all those talks just rumors about this company?

Honeywell International Inc. (NYSE:HON) Chairman David Cote and CFO Dave Anderson last fall were both caught on tape talking up Honeywell International Inc. (NYSE:HON)’s pipeline of acquisition prospects, but that bullishness was hard to spot at EPG as there was hardly any discussion of deal-making.

Is that because Honeywell International Inc. (NYSE:HONis ready to cool off after doing a $600 million deal in December and announcing a $340 million deal last month? (Honeywell bought RAE Systems for $340 million in April. RAE Systems is a privately-held company that makes gas and radiation detection systems and software). Or is this just the calm before something bigger is announced? On that possibility, Cote said at EPG conference “we’re not going to lose our heads all of a sudden and do something silly.”