Magnetek Completes Sale of Its Power Electronics Group to Power-One

October 23, 2006 by Jeff Shepard

Magnetek, Inc. completed the sale of its Power Electronics Group (PEG), which manufactures embedded power supplies, to Power-One, Inc. The transaction, which satisfied all applicable regulatory approvals and other customary closing conditions, included payment by Power-One to Magnetek of net $68 million in cash and assumption by Power-One of approximately $16 million of Magnetek's debt. Magnetek will use proceeds from the divestiture of PEG in part to pay down debt and to make a large enough cash contribution to the company's pension trust to substantially lower the amount of expected future contributions.

Through the divestiture of PEG, Magnetek is making the transition from, predominantly, a custom components manufacturer to a systems integrator, thus changing its role from one of meeting individual customers' specifications to one of addressing market-defined, market-wide needs. Over the past three years, Magnetek's Power Control Systems Group, which constitutes substantially all of the company's remaining business, has grown at a compound annual rate of 10%, and its gross profit margins have been above 30% of sales.

The divestiture of PEG will also enable Magnetek to reduce selling, general and administrative expense (SG&A) and interest expense substantially, resulting in positive operating profit and cash flow. The company expects that its net operating loss carry-forwards (NOLs) will allow most of its profits and cash to drop to the bottom line. If the historic performance of the company's Power Control Systems business is an indicator, management believes that revenues, profits and cash flow from operations should continue to grow.