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ABB CEO Fred Kindle exits over acquisition strategyThe automation world and most ABB employees were very surprised recently (mid-Feb. 08) when, midst the announcement of excellent financial results, CEO Fred Kindle (German pronunciation Kindler) left the company.
In 2007, ABB net income more than doubled from $1.4B to $3.8B while profit grew 57% to $4B and revenues were up 25% to $29.2B. Profit for Process Automation jumped 26% from $541M to $683M, with revenues up 18% to $6.4B; margins increased from 9.9 to 10.6%. Bookings were up 21% at $7.9B. ABB announced doubling of its dividend and, with lots of cash in hand, $2B buyback of shares.
So, with these spectacular results, why did Fred Kindle (48) leave? The board said: "irreconcilable differences". Fred Kindle said nothing.
I listened to a media and analyst conference call where several persistent press bulldogs brought up the question "Why?" and the Board stubbornly refused to elucidate beyond, "It was by mutual consent, and we have all agreed not to discuss it."
ABB was on the brink of failure in mid-2002, and the company re-balanced itself under Chairman Jurgen Dohrmann and Process Automation head Dinesh Paliwal. Fred Kindle joined the company in Sept. 2004 and took over as President and CEO in January 2005, which evidently disappointed Dinesh Paliwal who then left to run his own show.
Fred Kindle managed a period of strong organic growth and profit. After his exit, the ABB board kept expressing their thanks to him for "driving the company to the extraordinary level of performance over the last three years". But they refused to comment on the reasons for his departure. ABB's head of human resources, said that Fred Kindle wasn't fired, and was allowed to collect his salary, options and annual bonus payments.
Here is an insider's summary of what happened: The decision to force Fred Kindle out was instigated by ABB Chairman Hubertus von Grunberg, and unanimously endorsed by the board. Fred Kindle is a conservative manager, focused on planning, execution and detail. During his tenure as CEO, he failed to make any significant acquisitions, despite sitting on a cash pile of $5.4B, with the ability to raise twice that much through debt.
In Sept. 07, Fred Kindle said that ABB had looked at 100 possible acquisition targets, but shied away from any deals because "prices were too high." He insisted that ABB hoped to execute a large acquisition or several midsize transactions over the next 2 years. Evidently, that was too conservative for von Grunberg, whose aggressive management style differed markedly, causing tension between the two. Clearly Fred Kindle was also getting frustrated with the push to make a big acquisition. It needed vision and talent which he just didn't have.
The board's patience ran out and it decided to replace Fred Kindle. With the CFO acting on an interim basis, the search for a new CEO is on. At the news conference, von Grunberg proclaimed that ABB was seeking a CEO with acquisition experience, providing more clues as to why Fred Kindle was exited and what lies ahead for ABB.
With a potential cash-stash of over $10-15B, ABB wants and needs to make a big acquisition - not several smaller ones. My own considered opinion is that US-based Rockwell Automation is the primary target. Rockwell stock has dropped from a high of 75 to the mid-50's, making them an attractive target. Read my commentary (below) on why Rockwell can/should be acquired.
Why Rockwell is a primary acquisition targetAll organizations go through five phases of growth. Each phase needs different management structures and strategies, and ends with a crisis that demands change. The subject has been well documented in the Harvard Business Review and elsewhere.
Here are the characteristics of the 5 growth phases:
Here's my point about Rockwell Automation. The company now has revenues of $5B, with about 20,000 employees, and is run by CEO Keith Nosbusch, an Engineer. With a strong, but declining N. American market share in PLCs and related products (widespread low-cost competition) and inability to generate organic growth in other geographies and markets, Rockwell is stuck.
At $5B, 10% growth represents $0.5B, which is tough to generate organically, and almost impossible to implement with multiple $50-100M (phase-3) acquisitions. One small profits-slip at any one of the acquisitions will throw Rockwell off balance and cause their shares to slide, making them even more vulnerable to being acquired by someone like ABB.
Just as many mid-level acquirers know the vulnerabilities of Phase-2 and Phase-3 companies, company strategists in large organizations like GE and ABB recognize the growth barriers for Phase-5 companies like Rockwell. Which is why Rockwell is a specific target.
Rockwell MUST pull-off a phase-4 ($1B+) acquisition to sustain growth. But, beyond just cash (only about $500M available) they just don't have the vision and management depth to buy anything bigger than about $100M. And so they are busy with band-aid strategies - alliances and partnerships with Dassault, Endress+Hauser and others. And other leaders like CISCO and Microsoft play with Rockwell as an automation toe-in-the-water. Beyond just press-releases, these "alliances" won't generate any serious revenue growth.
Like Fred Kindle at ABB, Keith Nosbusch just doesn't have the moxy and chutzpah to take his company beyond Phase-5. And so, sooner or later, Rockwell will be vulnerable to takeover. By ABB, or someone similar.
Beckhoff Automation - strong growth continuesMy discussion of the CONTROL/ARC list of "Top 50 Automation Suppliers" (eNews 8 Feb. 2008) generated a lot of feedback and criticism. Several people brought up their own definitions of "automation" plus names of companies that clearly should have been on the list. I did, of course, send appropriate feedback to Editor Walt Boyes and he assures me that the CONTROL List, the only one of its kind, will continue to improve.
There was one BIG omission that I must point out: Beckhoff Automation clearly should have been on both the Global and North American Lists. With 22 international subsidiaries, Beckhoff 2007 revenue was more than $300M, focused completely on advanced automation technology products (I/O systems, controllers, HMI, Software).
In May 2007, I published an article on the corporate culture of Beckhoff Automation (weblink below). When I attended the Hannover Fair in Germany during the 80's and 90's, I watched as Hans Beckhoff built his company with an amazing array of industrial computers and I/O products. Each year, we'd have a drink and a chat on the Beckhoff booth, discussing the perils of "scaling up" past the entrepreneurial stages. By now Hans was my friend, and I saw his factory in Verl, visited his home and met his family. As the years passed, I've watched with respect and admiration as he continued steadily to build the talent and the team to fuel growth.
Now, a decade later, Beckhoff Automation has grown well past the Phase-2 $100M barrier and continues to grow steadily. In 2007, over 20% growth to $300M; 2006, 26% growth, to $250M; 17% (2005), 31% (2004), 27% (2003).
Hans Beckhoff continues to be the Chief Technology Officer. His technology mantra is, "Never do anything in hardware that you can do in software". He guides the growth of his company with a "10 in 10" mission - a plan to increase revenue 10 fold in 10 years (about 26% annually). It will be interesting to see how Beckhoff breaks through growth phases 3 and 4.
I like Hans Beckhoff and his company. A lot.
TED - short video talks by significant peopleGo visit TED to review some ideas worth spreading. 20-minute inspired video talks by some of the world's greatest thinkers.
Here are some of my own favorites:
Genomics pioneer Craig Venter talks about the millions of genes his team has discovered in their quest to map the ocean's hidden biodiversity. He has a vision for engineered species that can replace the petrochemical industry by creating clean energy.
Hod Lipson demonstrates a few of his cool little robots which have the ability to learn, "understand" themselves and self-replicate. An inquiry into the nature of how humans and living beings learn and evolve, and the very nature of consciousness.
Richard Branson talks about the ups and the downs of his career, from his multibillionaire success to his near-death experiences.
Stephen Petranek lays out the challenges that face us in the drive to preserve the human race forever. Will we be wiped out by an asteroid? Eco-collapse? Pandemic disease?
Futurists & Futures Forecasts (2008)These days, one of my primary avocations is future studies. I'm a professional member of the World Future Society and the Association of Professional Futurists. Each year since 1985, the editors of THE FUTURIST have selected the most thought-provoking ideas and forecasts appearing in the magazine. Here are the editors' top 10 forecasts from Outlook 2008:
eFeedbackDon Alderman [firstname.lastname@example.org] visiting from Australia thinks that Americans are isolated and don't get involved enough:
"Americans trumpet around the world that they have the greatest democracy in the world. So why doesn't everyone vote and have a say in correcting the problems?
"Like any corporation, or country for that matter, Democracy is only as good or as strong as the people that make up it's structure.
"From the outside looking in, American Democracy is seen as self serving to the military/industrial complex and severely broken when only the small percentage of people that vote drive the whole country. When 100% of the USA populace gets off their backsides and has a say in government, then the world may start to believe the rhetoric about the "Great American Democratic process". For the moment it's a global joke, while "you the people" still don't get the punch line.
"Thanks for being one of the free thinkers and debaters. It would be nice to see more of it."
"I am Chief Electrical Engineer for a company whose major work is engineering water and waste water treatment plants and pumping stations. We have a design center in Pune, India, with 3 electrical engineers and 5 Instrumentation and Control engineers. I went there to share my experience and do some training. Thanks to modern network technology, I was also doing my regular job while there.
"All in all, I see India as being a very capitalist country, and agree with most of what you are saying about the future. Our company feels that we want to hire engineers there, because it is easier to hire them there, than it is here. We're not trying to replace American engineers - we just need engineers. In the past, we have used them mostly just to do drafting of our drawings. But now we are counting on them to do lighting designs, and taking first cuts at the power distribution designs. The great thing is that they are about 12 hours off from us, so they can work on our jobs while we sleep! "I took my wife along, so that she could see that part of the world. We both really enjoyed the trip. We flew in to Mumbai, where we got a car which took us around for about 2 hours or so for 1000 Rupees ($25), a very good deal.
"The way that you describe the traffic in Bangalore was pretty much what we saw. Our company sent a driver to pick us up at our plush hotel (the fanciest place I've ever stayed), for a Sunday morning ride to Pune. During our stay in Pune, the traffic was bad, but not as bad as Mumbai. It was a week or so before I finally took a ride in an autorickshaw. Eventually, my wife took a ride too. The drivers kind of took care of her, and I noticed they didn't make nearly as many high-G turns when she was in the autorick. Thank you for your economic analysis on autoricks. Those things are great!"
"Equally (especially in the UK) the Governmental budgets rely on the tax derived from cars and fuels. Would they really be happy to see a major drop in their income? I changed from petrol to diesel (because I was told it was cleaner) but now diesel costs more than petrol in the UK. If we try to change to bio-diesel, we find that the auto companies (typically) only allow 5% bio otherwise the warranty is withdrawn.
So, will we actually see any really significant changes in our lifetime, or are we going to rely on our children, grandchildren and great-grandchildren actually doing something positive?"
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