ABB, based in Zurich and the world’s largest provider of power-transmission gear, may announce a deal as soon as today, said the person, who spoke on condition of anonymity because the negotiations are private. The talks for Thomas & Betts, whose market value was $3.02 billion based on its Jan. 27 closing price of $57.95 a share, may still break down.
Thomas & Betts, based in Memphis, Tennessee, would be the second large acquisition for ABB under Chief Executive Officer Joe Hogan, who joined in 2008 from General Electric Co. (GE) He bolstered ABB in the U.S. with the January 2011 purchase of Baldor Electric Co. for $3.1 billion. That deal added industrial motors and drives and gave ABB heft in automation, where it competes with Siemens AG. (SIE)
“The timing for any such transaction is near perfect into what look like the beginnings of strong upturns in U.S. utility and construction markets,” Scott Davis, a New York-based analyst with Barclays Plc, wrote in a report yesterday. The electrical industry “has long struggled with scale issues, global coverage and pricing power.”
Spokespeople for ABB in Zurich didn’t respond to messages seeking comment yesterday. A phone message left for Tricia Bergeron in investor relations at Thomas & Betts wasn’t answered. The Wall Street Journal reported the talks yesterday, citing unidentified people familiar with the situation.
Thomas & Betts
Thomas & Betts was founded in 1898 as a sales agency for electrical wires and raceways, and its products are used in the telecommunications, construction and power utility industries. Now it makes cable ties, connectors and steel boxes that house electrical wiring, generating 2010 sales of $2 billion.
The shares of Thomas & Betts have climbed by more than half since August. They haven’t returned to the record closing high of $64 set in 1998.
At the Jan. 27 price of $57.95, Thomas & Betts traded at about 15 times analysts’ estimates for 2012 profit, data compiled by Bloomberg show, up from as little as 10 times in September. Electrical equipment makers Hubbell Inc. and Amphenol Corp. fetch multiples of about 15 times and 16 times forward earnings respectively, the data show.
Thomas & Betts is scheduled to release its fourth-quarter earnings report today. For 2010, the company said industrial and construction customers accounted for about 76 percent of its sales, with utilities making up the rest. The U.S. and Canada generated about 81 percent of its sales.
For ABB, the acquisition would be a hedge against a weakening European economy and currency, Davis said.
ABB was created in 1988 from the combination of Asea AB of Sweden and Switzerland’s BBC Brown Boveri. Investor AB, the Swedish Wallenberg family’s holding company, remains ABB’s largest shareholder, with a stake of about 7.2 percent, data compiled by Bloomberg show.
ABB and Munich-based Siemens compete in areas such as factory automation gear and power-transmission equipment. ABB, which posts fourth-quarter earnings Feb. 16, had revenue of about $32 billion in 2010, with power products making up about 27 percent of sales.
Hogan has vowed to pursue “disciplined” acquisition opportunities across all business areas and geographies, and he has proven that he is willing to abandon a deal. In 2010, he walked away from a planned purchase of Chloride Group Ltd. after being outbid for the U.K. company by Emerson Electric Co. (EMR)
Hogan Builds ABB
Hogan has made the Americas one of his main regions in which to pursue growth in power systems, discrete automation and low-voltage products. By 2015, ABB wants to generate as much as 30 percent of revenue from the region, compared with 19 percent in 2010. The company has said that it will continue to focus on power and automation and doesn’t intend to divest assets.
ABB has said purchases may boost annual sales growth by as much as 4 percent until 2015.
A purchase of Thomas & Betts would mark the second major deal announced by a Swiss company in less than a week. Roche Holding AG offered $5.7 billion on Jan. 25 in a hostile bid for Illumina Inc. to bolster sales of gene-mapping equipment.
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