UPDATE: ABB To Buy Thomas & Betts To Strengthen U.S. Low Voltage Position
30 January 2012 - 8:27PM
Dow Jones News
Switzerland's ABB Ltd (ABBN.VX) Monday said it has agreed to pay
$3.9 billion in cash for Thomas & Betts Corp. (TNM) to increase
its exposure to the U.S. low-voltage electrical equipment
market.
The power and technology group said it is paying $72 a share for
Thomas & Betts, a major North American supplier of power
transmission lines and electrical conduits, as well as heating and
ventilation products.
The acquisition price represents a 24% premium to Thomas &
Bett's closing share price on Jan. 27 and a 35% premium to its
average stock price over the past 60 trading days, ABB said.
The Swiss company said it expects to extract cost savings and
revenue gains worth $200 million a year by 2016, with most of the
cost synergies expected to come from more efficient sourcing and
purchasing. ABB has secured $4 billion in bridge financing from
Bank of America Merrill Lynch to fund the deal which it will repay
with existing cash and new debt.
The merger transaction requires the approval of Thomas &
Betts shareholders as well as relevant regulatory authorities. ABB
expects it will close mid-year.
ABB Chief Executive Joe Hogan said the acquisition, ABB's
biggest since it bought electric motor maker Baldor Electric Co for
about $4.2 billion in 2010, gives the company "a great position in
a growing U.S. economy and balances our portfolio better across the
three geographic regions, Asia, Europe and the Americas too."
Analysts said the transaction made strategic sense for ABB but
some were concerned about the price.
"The price certainly isn't cheap, but the news is fundamentally
positive for the stock, as they will have access to loads of new
sales channels in the U.S," said analyst Richard Frei, at Zuercher
Kantonalbank.
ABB shares fell as some analysts considered the purchase price
somewhat expensive.
At 0850 GMT, ABB was down CHF0.27, or 1.4%, at CHF19.16, while
the broader Swiss market was down 0.7%.
Low voltage products is the smallest of ABB's four divisions,
with sales $1.36 billion in the third quarter of 2011, but the most
profitable with an operating margin of 19.9% in the third quarter
of 2011.
ABB, which is based in Zurich, said in October the division was
facing softening demand, with slower demand in developed markets
and lower investment in renewables.
Hogan said the intention was not to counterbalance slowing
demand elsewhere, but improve access to the U.S. market which he
estimated was growing at 2.5% to 4%. In contrast the company
expects Europe to grow by 1% to 2% and Asia by 5% to 7%.
Thomas & Betts is estimated to report 2011 revenues of $2.3
billion, and operating profit of $390 million. ABB's low voltage
business in the U.S. had sales of $240 million in 2010.
Thomas & Betts, which is based in Memphis, Tennessee, was
also attractive because of its distribution channels in the U.S.
The company has a network of 6,000 distributors across the U.S.
which will allow ABB to double its addressable market to
approximately $24 billion.
"In the U.S. low voltage business it wasn't always the best
products that won orders, but distribution channels were the most
important," Hogan said.
Around 40% of Thomas & Betts sales were in the construction
market, with most of it in the commercial property sector which had
weathered the U.S. downturn better than residential, Hogan
added.
In November, ABB said it was targeting sales growth of 7% to 10%
each year over the next five years, a figure which could be
increased by 3% to 4% by merger and acquisition activity.
The company could spend $9 billion to $18 billion between 2011
and 2015, in order to add $5 million to $10 billion in inorganic
sales growth.
Hogan said there was potential for futher deals, but said
nothing was imminent.
-By John Revill, Dow Jones Newswires; +41 43 443 8042 ;
john.revill@dowjones.com
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