OnTheBlock: UNOVA Weighs Its Growth Options

Looking to breathe some life back into its stock, UNOVA Inc. has retained Credit Suisse First Boston to explore strategic alternatives, but sources believe that the company would have a difficult time on the sale block if it goes that route. The June 20 news came alongside the company’s expectation that it would post an operating loss of up to 25 cents for the second quarter. The next day, the company’s stock lost 21% to finish trading at $8.18. At press time (end of June), the stock finished trading at $6.94. An arb monitoring the situation said he was unsure whether UNOVA would get taken out. “They have a lot of problems there,” he said. Joel Levington, an analyst at S&P, said he would not be surprised to see UNOVA remain on the sale block for a while, because the company seems to be trapped between a rock and a hard place. UNOVA’s automated data systems business is the growth story of the company, but it has had earnings difficulties and limited cash flow, while UNOVA’s industrial automation systems segment is not growing and is competing in a highly fragmented and mature industry, Levington said. The industrial segment is generating cash flow, however, and could be of interest to financial buyers who could leverage the division. He declined to comment on what the company could fetch in a sale. UNOVA is an industrial technologies company with two primary businesses: Automated Data Systems, which manufactures wireless networking and Internet-enabled data collection systems, and Unova Industrial Automation Systems Inc., maker of integrated manufacturing systems. The $389 million market-cap company is headquartered in Woodland Hills, Calif. Steve Altman of Duff & Phelps Credit Rating said that one possible scenario is that UNOVA could sell the industrial business, use the proceeds to pay off debt, and turn around Intermec, which is part of its Automated Data division. He added that UNOVA’s industrial segment has a proven business model and would get no more than one times sales on the auction block, or around $800 million. CSFB banker Michael Hartmeier, who is representing UNOVA along with fellow bankers Robert Bertagna and Bob Levitt, said “We are still at an early stage of looking at these alternatives,” and added that the eventual outcome could be a sale of the business or a division or nothing at all. A source familiar with situation said that although it is a small universe that UNOVA orbits in, “There are at least eight strategic buyers with the capacity to buy” the automated data division. The source declined to name the companies, but said, “There’s a lot of upside potential with that unit.” The source added that despite the problems that UNOVA’s automated data and industrial divisions have, the segments are market leaders in their respective niches. The source noted that the industrial segment has generated cash flow and has innovative technology in its precision grinding systems for the automotive industry. For the first quarter, the company posted a loss of $500,000 on revenue of $434 million compared with a year-earlier gain of $3.5 million on revenue of $493 million.