Molex Inc. (MOLX:US), a maker of electronic components for products such as Apple Inc. (AAPL:US)’s iPhone, agreed to a $7.2 billion acquisition by Koch Industries Inc., the holding company controlled by the billionaire Koch brothers.
Koch will buy Molex’s shares for $38.50 apiece, a 31 percent premium over the publicly traded common stock, according to a statement today. The companies expect to complete the transaction by the end of the year.
Koch, a closely held company that owns everything from biofuel and fertilizer makers to commodity-trading services, is using the acquisition to expand into connector components. The deal won the support of the Krehbiel family, which has controlled Molex since it began life as a manufacturer of moldable plastic in 1938.
“It’s a bit of a surprise since it had been family-owned for such a long time,” said Shawn Harrison, an analyst at Longbow Research in Independence, Ohio. “It’s a significant premium -- the valuation is a bit higher than Molex’s peers.”
Molex jumped 31 percent to $38.56 at 11:35 a.m. in New York. The stock had climbed 7.4 percent this year before today.
The deal will turn Molex into a stand-alone division of Koch, with the company retaining its name and headquarters in Lisle, Illinois. Molex sells interconnection systems to automakers, mobile-phone companies and military customers. That includes Apple, which uses some Molex connectors for the iPhone 5. Apple is scheduled tomorrow to unveil the latest version of the device, which is the industry’s top-selling smartphone.
The transaction values Molex at 1.9 times revenue and 11.2 times earnings before interest, taxes, depreciation and amortization, according to data compiled by Bloomberg. In surveys of comparable deals, the median price paid was 0.8 times revenue and about 8.5 times Ebitda.
Investors are getting “a significant premium and compelling value for their holdings,” Fred Krehbiel, the 72-year-old grandson of Molex co-founder Frederick August Krehbiel, said in today’s statement. His family holds sway over the company through a dual-class share structure.
“After 75 years this was a difficult decision,” said Krehbiel, who serves as co-chairman of Molex’s board. “But our board of directors and our family believe that this transaction, which follows a diligent and thorough review process by the board, provides outstanding benefits for all our stakeholders.”
For Koch, the transaction is its biggest deal in eight years and provides a “significant new platform for growth,” the company said. The acquisition is the second-largest in Koch’s history, after the 2005 purchase of Georgia-Pacific for $13.2 billion, excluding debt, according to data compiled by Bloomberg. The company said today that it has spent about $50 billion in acquisitions and capital spending since 2003.
Molex’s sales (MOLX:US) climbed 4 percent to $3.62 billion in its last fiscal year, which ended in June. Net income dropped 13 percent to $243.6 million. Koch has annual revenue of about $115 billion.
Koch will have to cut costs to make the deal work, Harrison said. By taking Molex private, Koch will save the expense of operating a public company and paying the dividend, which is about $170 million a year, he said.
William Blair & Co. and BDT & Co. served as financial advisers to Molex, while Goldman Sachs Group Inc. provided a fairness opinion and other financial advice. Dentons was Molex’s legal adviser. Latham & Watkins LLP represented Wichita, Kansas-based Koch.
“It’s going to be a cash-generating business for Koch across diversified markets,” said Anil Doradla, an analyst at William Blair in Chicago. “As a private company, you have the ability to unlock more potential that may not be possible as a public one.”
Charles and David Koch, who control Koch Industries, have a net worth of almost $45 billion apiece, according to Bloomberg Billionaires data. They are the sixth- and seventh-richest people in the world and have added $4 billion each to their fortunes this year.
The brothers are well-known political contributors who founded the Republican-leaning, small-government group Americans for Prosperity. David Koch also has donated about $1 billion to the arts and medicine over the past decade.
The Kochs drew protests earlier this year over speculation that they might buy the Los Angeles Times or other Tribune Co. publications. In May, union groups rallied against a potential sale to Koch Industries, citing the brothers’ support for initiatives such as California’s Proposition 32, a failed ballot measure that would have prohibited unions from using payroll deductions for political purposes without permission.
After a review, Koch decided not to bid on the papers.
“Koch continues to have an interest in the media business and we’re exploring a broad range of opportunities where we think we can add value,” Melissa Cohlmia, a spokeswoman for the company, said last month.
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