Anixter Investors Poised for 33% Pop From Sale: Real M&A

Anixter International Inc., which reached an all-time high this month, stands to hand investors including billionaire Sam Zell even more from a sale.

The $3.5 billion supplier of specialty wire and cable products is working with Goldman Sachs Group Inc. to find a buyer, people with knowledge of the matter told Bloomberg News last month. The Glenview, Illinois-based company could draw bids of $117 a share, according to the average of five analysts’ estimates compiled by Bloomberg. That’s 9.4 percent more than last week and 33 percent more than in late January, before takeover speculation began driving the stock higher.

Anixter, whose products are installed in office buildings and data centers, may appeal to companies anticipating a pickup in non-residential construction, according to Stifel Financial Corp. While a purchase wouldn’t be cheap, European electrical-equipment distributors Rexel SA and Sonepar could be attracted to Anixter for its communications cable business, Stifel said. A combination with Wesco International Inc. also may make sense, Robert W. Baird & Co. said. BB&T Corp. sees W.W. Grainger Inc. as another logical buyer.

“It’s a really high-quality company with leading positions in its markets,” Noelle Dilts, a Denver-based analyst with Stifel, said in a phone interview. “You can see why it’s an attractive asset for one of the larger distributors.”

A representative for Anixter said the company doesn’t comment on market speculation, when asked about the potential for a sale.

Stock Surge

Anixter distributes communications and security-related infrastructure products including electrical wire and cable. It also sells steel fasteners used primarily in heavy trucks. The company’s largest shareholder is Chai Trust Co., a division of Zell’s Equity Group Investments. Sam Zell is chairman and his son is a director.

Anixter’s net income climbed about 60 percent to $201 million last year on sales of $6.2 billion, helping spur a 40 percent gain in the stock in 2013. The shares climbed another 19 percent this year and reached a record $107.51 on March 4, driven in part by takeover speculation that began in early February.

On Feb. 20, Bloomberg News reported that Anixter is seeking a buyer, citing people with knowledge of the matter. The company was to look for second-round bids this month, said one of the people, who asked not to be identified because the process is private.

Baked In

Analysts expect the distributor to garner about $117 per share in a sale, according to an average of five analyst estimates. It closed last week at $106.97.

Today, Anixter shares fell 1.1 percent to $105.79.

After the recent gains, Anixter’s stock price is “baking in part of the premium,” Hamzah Mazari, a New York-based analyst with Credit Suisse Group AG, said in a phone interview. “It would be tough to see the premium be more than 10 percent to where the stock is today.”

Anixter’s leading position within data and communications cabling is attractive for distributors looking to broaden their portfolio of products, said Dilts at Stifel. The company also stands to benefit from any improvement in non-residential construction because new and renovated structures require updated electrical and communication wiring, she said.

Cost Savings

International distributors, such as Rexel and Sonepar, could be lured to Anixter by the prospect of cost savings, Dilts said. The electrical wire distributors could gain coveted data assets in order to cross-sell with their existing electric wiring components, creating additional revenue as well as cost savings by combining sales force and warehouses, she said.

“It’s a fragmented market globally,” Shawn Harrison, an Independence, Ohio-based analyst with Longbow Research LLC, said in a phone interview. “If you’re looking to consolidate the inventory and take out the people cost by leveraging a combined sales force and bringing in new product lines, one plus one should equal more than two.”

Another key gain for Paris-based Rexel would be wider access to the North American market, where it doesn’t have a big presence, said Credit Suisse’s Mazari. Anixter generates more than two-thirds of its sales in North America.

Sonepar, also based in Paris, could benefit from the same geographic expansion and broaden its portfolio of products, said Stifel’s Dilts.

Acquisition Opportunities

Penelope Linage, a spokeswoman for Rexel, declined to comment on speculation, reiterating a statement it released on Feb. 24.

“Rexel assesses and evaluates acquisition opportunities on a regular basis applying strict criteria and standards, which are fully in line with its value creation strategy and shareholders’ interests,” the company said in its statement.

A representative for Sonepar didn’t immediately have a comment.

Among its U.S. competitors, Anixter would be a logical fit to combine with Wesco, a Pittsburgh-based cable distributor with a market value of $3.8 billion, said David Manthey, an analyst Baird. A merger with Wesco “makes intuitive sense” because Anixter’s strengths are complementary and would create a company with combined annual sales of almost $14 billion, he wrote in a Feb. 21 note.

While a tie-up with Wesco makes sense as a consolidation play, “it would be hard to manage financially,” Holden Lewis, an analyst with BB&T, wrote in a Feb. 27 note.

Sneaky Value

Grainger, an $18 billion hardware supplier, is a less obvious suitor, yet a takeover by the Lake Forest, Illinois-based company “could solve some fairly pressing issues” and would be “financially doable,” Lewis wrote. Anixter’s geographic reach could help advance Grainger’s efforts to expand internationally and its communication cable assets would provide substantial cross-selling opportunities, he said.

“There is sneaky strategic value to melding Grainger and Anixter,” Lewis wrote.

Representatives for Wesco and Grainger said they don’t comment on speculation, when asked if they were considering an acquisition of Anixter.

A purchase of Anixter wouldn’t come cheap after the run-up in the stock, and the company isn’t in a position where it needs a buyer, said Stifel’s Dilts.

“They’re very healthy financially,” Dilts said. “Because Anixter is not desperate to sell, it’s going to sell at a premium even to where it’s trading now.”

Even so, with Anixter’s businesses often miscategorized, misunderstood or ignored by many investors, “a sale could unlock value,” Manthey of Baird wrote in his Feb. 21 note.

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