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Swiss engineering group ABB said it had agreed to buy U.S. electrical components maker Thomas & Betts (TNB-N) for $3.9 billion US to ramp up its presence in the world's largest market for low-voltage products.
Under the terms of Monday's deal, ABB will pay $72 per share in cash -- a 24-percent premium over the stock's Friday closing price -- for Thomas & Betts, which supplies the construction, communications and power industries with connectors for cables, steel masts and heating and ventilation products.
Chief Executive Joe Hogan said the acquisition would open up an addressable U.S. market for low-voltage products of about $24 billion for ABB's most profitable product range. The deal would bring ABB's expenditure on companies in the U.S. to some $9 billion since Hogan took the helm in 2008, as he seeks to plug gaps in the group's portfolio.
Thomas & Betts, which reported strong sales and profit growth on Monday, sells many of its products to U.S. utilities, and ABB is hoping to grab business as these companies boost spending over the next few years to bring older plants in line with new environmental regulations.
"Eighty percent of the revenue of our low voltage business is contained between China and Europe, and the U.S. has the world's largest, so our primary intent here is to make sure we penetrate that market," Chief Executive Joe Hogan told a conference call.
ABB's low voltage division, which makes products like circuit breakers and enclosed switches, is the group's most profitable with an operating margin of 19.9 percent in the third-quarter of 2011.
Analysts said the deal looked expensive but was a strategic fit.
"The acquisition strategically makes sense as strengthening the North American business comes at rather demanding multiples but also offers significant synergy potential," said Vontobel analyst Panagiotis Spiliopoulos.
Under Hogan's leadership, ABB has used its war chest to boost its presence in North America buying industrial motor firm Baldor Electric for $4.2 billion in 2010 and spending more than $1 billion on U.S. software firm Ventyx.
Through the deal, ABB will gain access to Thomas & Betts' network of more than 6,000 distributor locations and wholesalers in North America. The U.S. market had grown between 2.5 and 4 percent in recent years, Hogan said.
"We have a pretty small presence in U.S. low voltage with about $240 million (per year) so far, so obviously this is completely changing the game for us," Chief Financial Officer Michel Demare told a conference call.
ABB, which had some $1 billion in cash at the end of the third-quarter, has said acquisitions could potentially add another 3 to 4 percent to its overall growth rate.
"We have ammunition for further deals, nothing is really imminent in that sense. But we are making sure we continue to look at what opportunities we continue to build," Hogan told the conference call.
Memphis-based Thomas & Betts, which competes with firms like Cooper Industries (CBE-N) and Hubbell Inc., also makes products ranging from connectors for cables to heating and ventilation products and steel masts.
The company, which employs some 9,400 people, reported a 14.6 percent rise in 2011 sales to $2.3 billion, while profit increased to $190.2 million from $145.6 million.
ABB, which expects some $200 million in annual cost savings from the deal by 2016, said the acquisition would have no effect on the company's dividend policy.
Bank of America Merill Lynch acted as advisers on the deal.