Distributors react to deal between ABB, Thomas & Betts

A Jan. 30 news release datelined Zurich, Switzerland formally announced the agreement ABB struck with Thomas & Betts—a deal with a $3.9 billion price tag. The acquisition has been stamped as “friendly” by ABB, Thomas & Betts, and the business media.

The news release notes that the deal means, “ABB gains access to Thomas & Betts network of more than 6,000 distributor locations and wholesalers in North America.”

How do electrical distributors feel about the acquisition? "The purchase of Thomas and Betts by ABB is yet another sign of the globalization of the electrical market which is bound to have trickle down effects on the distributor," said Colleen Kramer, president of Evergreen Supply Company in Chicago. Kramer continued, "Especially the independent distributor as they look to streamline their supply chains and evaluate distributor relationships."

Joe Lechner, vice president of material management at Western Extralite, isn't expecting much of a ripple effect from the buyout. "The impact for Western Extralite should be minimal unless there are significant changes with the T&B products we stock."

The acquisition becomes final upon regulator and Thomas & Betts shareholder approval. The price works out to $72 per Thomas & Betts share—24% above the stock’s close on Jan. 27. Shareholders could vote on the deal in April or May.

ABB has the money for the purchase. The company said that Bank of America Merrill Lynch has “fully underwritten bridge financing,” giving ABB the $4 billion it needs to complete the transaction.

Above: Graphic from ABB online presentation on the planned T&B acquisition attempting to demonstrate how the companies fit together.

“This is another big step toward our goal of expanding our presence in the key North American market,” said Joe Hogan, ABB’s CEO. “Because our products are complementary, we’ll go to market with one of the broadest offerings in the industry.”

Above: 5-year price performance of ABB stock (which is traded on the NYSE).

Thomas & Betts posted its Q4 and full-year 2011 financial results on Jan. 30. Q4 sales of $603 million were up 13.4%. Full-year sales of $23 billion were up 14.6% compared to 2010.

According to the Thomas & Betts news release, “For the full year 2011, electrical segment sales increased 13.5% to $1.9 billion. Organic sales growth accounted for approximately 8% of the increase; acquisitions contributed 3.2% and favorable foreign currency contributed 2.3%.”

Above: Graphic on T&B’s business from ABB’s presentation on the acquisition.

Dominic J. Pileggi, chairman & CEO of Thomas & Betts, said in his 2012 outlook sales are expected to rise in the mid-single-digit range. ABB’s acquisition release said Pileggi would remain in place, running the Thomas & Betts operation if and when it becomes part of ABB.

The ABB news release also mentioned that Thomas & Betts has 200,000 products marketed “under more than 45 premium brand names.” The company also has manufacturing facilities in 20 countries with approximately 9,400 employees. ABB says that Thomas & Betts’ products are “complimentary” to those of ABB’s Low Voltage Products division. Also according to ABB, “Thomas & Betts has a leading logistics model with its distributors that allows simple, single invoicing and fast delivery of its full product scope.”

The acquisition is “a unique opportunity for ABB to grow in the largely untapped North American low-voltage products market,” said Tarak Mehta, Executive Committee member responsible for ABB’s Low Voltage Products division, into which Thomas & Betts will be integrated as a stand-alone unit.

“We plan to keep and build on Thomas & Betts’ strong brand and product names. We have complementary products that can be sold together already today and other products that will take some time to introduce to customers.”

The deal has led many to wonder why Thomas & Betts was for sale. According to a post on Dealbook, “Analysts at Barclays Capital wrote in a research report on Sunday that the deal makes sense for Thomas & Betts, given that the company lacks a clear succession plan for its current chief executive, Dominic J. Pileggi. It also appears to coincide with improving economic conditions in the United States.”

Did anyone see this coming? Perhaps famed investor Mario Gabelli did. In an early-2011 “Roundtable” article published in Barron’s, Gabelli said, “With the industrial world recovering, there is a greater need for electricity. Our play, Thomas & Betts [TNB], is in the energy efficiency business and has 51.6 million shares. It sells for about $48 and debt is $315 million.

“We were large holders of Baldor, which was acquired by ABB [ABB] for 13 times EBITDA [Earnings Before Interest, Taxes, Depreciation, and Amortization]. This company sells for 6.5 times 2011 EBITDA. It will earn about $2.70 a share in the year just ended, and earnings should march up to $6 by 2014.

“It is an important component supplier in the low-voltage electrical products market. This is a $45 billion market. In power systems, they have an addressable market

of close to $115 billion, growing 5% to 6% a year.

“Thomas & Betts generates a lot of cash. The company should have $18 a share in cash in 2014.”

How will Thomas & Betts spend that cash? Gabelli said, “It can buy back stock or make acquisitions. Thomas & Betts will be part of a global consolidation in the electrical products market.”