Gentex Corp. (GNTX), a maker of automotive mirrors and electronics that currently has no long-term debt, will borrow at least $300 million for its $700 million purchase of Johnson Controls Inc. (JCI)’s HomeLink product line.
The rest will be funded with cash or cash equivalents, Chief Financial Officer Steve Downing said on the Zeeland, Michigan-based company’s second-quarter earnings conference call. Gentex said it has $595 million in cash and short-term investments.
The HomeLink purchase will be Gentex’s first addition of debt in a “very, very long time,” said Lisa Richlich, the company’s coordinator of investor relations. Gentex will use both fixed-rate debt and a credit line and the debt won’t exceed $375 million, she said.
Gentex, which had $1.1 billion in revenue last year, is looking to the acquisition to expand its business. The company has forecast that HomeLink will increase annual sales by $125 million to $150 million. Buying HomeLink is “a better way of returning shareholder value,” Downing said today. The purchase was announced last week.
The move “highlights a change that they’re willing to take this debt on,” said Matthew Stover, an analyst with Guggenheim Securities in Boston. “I think their historic aversion to debt maybe was a little overzealous. They will comfortably pay this back.”
The HomeLink garage-door opener system has been incorporated into Gentex’s mirrors for 10 years. The company expects to close the purchase by the end of September.
Gentex reported second-quarter net income of $52.1 million, or 36 cents a share, exceeding the 32-cent average of 12 analysts surveyed by Bloomberg. Quarterly revenue rose 2.4 percent to $287 million.
Shares fell 5.7 percent to $22.03 at the close in New York. Gentex has gained 17 percent this year, compared with a 21 percent rise for the Standard & Poor’s MidCap 400 Index.
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