General Cable Getting Cheaper Beckons Activists: Real M&AJennifer Surane
General Cable Corp.’s stumbles may attract buyers or activist investors to the wire and cable maker.
The $1.2 billion company said earlier this month that it was cutting about 1,000 jobs and lowering its profit forecast, after reporting in April its worst quarterly loss on record. With the copper wire business in Venezuela under pressure and the stock falling, Chief Executive Officer Greg Kenny said in May that he was open to considering ways to unlock shareholder value.
Rhino Trading Partners LLC has an idea: an activist investor could come in and push General Cable to tackle its operational problems or sell itself. While it may be too much of a financial risk, Longbow Research says a strategic buyer such as Italy’s Prysmian SpA could try to acquire the Highland Heights, Kentucky-based company, which trades near its lowest price-sales multiple since 2009.
“General Cable could benefit operationally from an activist investor, a fresh set of eyes,” Timothy Chen, a New York-based analyst at Rhino Trading said in a phone interview. “They aren’t reinventing the wheel, that’s not what they have to do. They just have to do what they do better.”
General Cable, which has been in existence in some form since the 1800s, makes cables that deliver power, energy and data communications. The wire producer expanded through acquisitions in the 2000s and now operates in more than two dozen countries.
The company this month announced plans to cut 7 percent of its workforce in an effort to save millions of dollars. That follows a loss of $315 million in the first quarter after social unrest and volatile foreign-exchange rates hurt its copper wire business in Venezuela.
“If somebody has a better idea for the company, then we have to listen,” CEO Kenny said on the company’s last earnings call. “The business is complex in terms of where our cash is and the number of places that we operate in,” he said. “But we are open, as we have to be, to serious ideas about how to unlock value.”
Len Texter, a spokesman for General Cable, didn’t respond to requests for comment.
Shareholder Towle and Co. said it would welcome activist investor involvement that could prompt change and help turn the business around.
“Anytime is a great time for an activist, especially a company that’s been underperforming like this and has not appropriately guided expectations,” Chris Towle, whose St. Louis-based firm manages $560 million and owns shares of General Cable, said in a phone interview. “They’ve really laid an egg here the last couple quarters.”
The stock has fallen 19 percent this year, compared with a 7 percent gain in the Standard & Poor’s 500 Index. The drop leaves the company trading at 0.19 times sales, cheaper than 32 other electrical component and equipment makers larger than $500 million, according to data compiled by Bloomberg.
General Cable shares increased 5.4 percent to $25.09 today in the biggest one-day gain in more than five months.
While the restructuring sounds promising, its success is too dependent on the existing leadership, Towle said.
“We don’t think super highly of the management team, we think they’re OK,” he said. Now’s a good time for an activist, “especially if you have the strategic buyers in Europe.”
The industry is no stranger to activist investors. Hedge fund Amber Capital LP in May called for Nexans SA to force Chairman and CEO Frederic Vincent off the company’s board. While shareholders ultimately rejected the resolution, the Paris-based company did agree to split the two roles.
“The Nexans activist involvement, perhaps it provides a blueprint for how the same thing could be done for General Cable,” Chen of Rhino said. “And that might give an activist investor on this side of the pond the confidence to approach General Cable.”
Nexans and Milan-based Prysmian have shown they have the appetite for acquisitions and both could benefit from owning General Cable as excess capacity drives consolidation in the industry, according to Shawn Harrison, an analyst with Independence, Ohio-based Longbow. General Cable’s North American focus makes it an attractive target for European suitors looking to expand, he said. The continent accounted for 43 percent of General Cable’s revenue last year, according to data compiled by Bloomberg.
Prysmian became the world’s largest cable maker after it acquired Dutch rival Draka Holding NV in 2011, and buying General Cable may help the company solidify its top position. Nexans, the second-largest cable maker, recorded a loss in 2013, as it struggles to remain profitable amid overcapacity in Europe.
“If you’re an international player looking to get a foothold in the North American market, you can put a new site in and add to some of the capacity issues,” Harrison said in a phone interview. “Or if there’s an established player with a lot of great opportunities you could go with that – and General Cable represents that option.”
A representative for Prysmian didn’t respond to requests for comment. A representative for Nexans said the company doesn’t comment on market speculation.
Harrison estimates $36 a share would be a good starting point for determining a takeover price for General Cable. That would be about 50 percent higher than last week’s closing price, data compiled by Bloomberg show.
Even though Nexans and Prysmian make for logical acquirers, buying a company with operations across several continents may be too much of a challenge for them, said Noelle Dilts, a Denver-based analyst at Stifel Financial Corp. Nexans had $1.4 billion in cash and equivalents at the end of last year, and Prysmian had $567 million as of March, according to data compiled by Bloomberg.
“It would be a large acquisition for any competitor to take,” Dilts said during a phone interview. “The size and the complexity would make it very difficult.”
Nexans is also facing pressure of its own to turn the business around and may not be able to take on any acquisition. CEO Vincent said in May that the company didn’t restructure enough in 2004 through 2008.
Even so, Kenny’s openness to all options may clear a hurdle to getting a deal done or an activist involved, according to Chen at Rhino.
“In any M&A deal, the harder part of the equation is to find a willing seller,” he said during a phone interview. “What you have with General Cable is you do have a willing seller and that should not be overlooked.”