Exxon Will Sell Reliance Electric Unit for $1.35 Billion and Pull Out of Field

Exxon Corp. said Thursday that it is getting out of the electrical equipment business by selling its Reliance Electric Co. and other companies managed by Reliance for $1.35 billion.

Analysts hailed the move, long expected as the likely end to what had been seen as an embarrassing, mistaken venture by the world’s largest oil company.

It came just one day after Exxon said it will join Rockefeller Group in selling Exxon’s 54-story midtown headquarters to the Japanese conglomerate Mitsui & Co. for $610 million. Exxon said that deal would give it a one-time gain of about $246 million in its fourth-quarter earnings.

Together, the two sales represent the latest steps in a continuing retrenchment by Exxon in the face of new economic realities brought by the yearlong oil price collapse.

Earlier, Exxon cited that reason in announcing a major restructuring of its worldwide oil and gas operations, a 26% cut in capital and exploration spending and a plan to cut 6,370 workers from its staff of 146,000.

In Thursday’s statement, Exxon said it would sell Reliance and the other businesses to a group of investors composed of Reliance management, Citicorp Capital Investors and Prudential-Bache Securities.

The deal should be concluded by the end of the month, Exxon said, adding that it expected to generate an after-tax gain of more than $275 million from the sale.

Company spokesman Bill Smith said it was not clear if all the gain would be recorded in the fourth quarter.

Exxon bought Reliance, a Cleveland-based manufacturer of motors and other electrical communications and weighing equipment, for $1.236 billion in 1979.

The company was hoping to profit from technological developments contained in an energy-saving device for electric motors, for which it held commercial rights. But the technology eventually proved to be commercially unfeasible.

Called ‘A Great Move’

“This has been viewed as their largest discrete acquisition which clearly was unsuccessful, and to their credit, they’re owning up to it and going to write it off,” said Sanford Margoshes, an analyst who watches oil companies for the Shearson Lehman Bros. securities firm. “Good for them.”

Bruce Lazier, an analyst at Prescott, Ball & Turben, called the Reliance sale “a great move.”

“They lost a little pride, because it didn’t make them look like great technical geniuses, to invest all that money into a gizmo that didn’t work after two years of research,” he said. “But at least the value of Reliance improved enough over the years that they got back their principal.”

In announcing the sale, Exxon took pains to note that the Reliance acquisition did not lose money.

“Taking into account Exxon’s original purchase cost, movements of cash, and property between Exxon and the Reliance Electric group in the intervening years, and the proceeds of the sale, Exxon’s investment . . . over the period 1979 through 1986 will have provided a substantial positive net cash flow to Exxon,” the statement said.

Includes Other Firms

The Reliance Electric group of companies was expanded to include other Exxon activities in 1985, the largest of which was Gilbarco Inc., which makes pumps, measuring devices and service station dispensing equipment.

Earlier this year, Exxon said it sold off most of the activities of a Reliance subsidiary, Federal Pacific Electric, including its share holdings in Federal Pioneer Ltd., a Canadian company mainly involved in production of electric circuit breakers.

The statement said current Reliance management would remain in place.