news story:
(COMTEX) B: Stock mkt. kills distribution deal
B: Stock mkt. kills distribution deal
Oct. 19, 1998 (Electronic Buyers News - CMP via COMTEX) -- With the
merger of Reptron Electronics Inc. and All American Semiconductor Inc.
now scuttled, the question for the distribution industry becomes
when-not whether-the next industry acquisition will take place.
Neither Reptron nor All American last week ruled out the possibility
that each will be involved in another merger or acquisition.
"We have a fiduciary responsibility to our shareholders to explore
all possibilities," said Bruce Goldberg, chief executive of All
American. "We have an open mind about what could happen."
Reptron executives said the company has been in an acquisition mode
for a while, but current market conditions finally made the All
American deal impossible to pull off.
"In saying that, I mean world financial markets, the stock market,
and the market for electronic components," said Paul Plante, chief
operating officer of Reptron, Tampa, Fla.
The original deal, which was announced in June, was valued at roughly
$100 million, including the assumption of about $47 million of debt.
Since then, however, distribution stocks have traded down approximately
20%, Plante said.
The wild gyrations of the stock market sent the two distributors back
to the drawing board last month, when Reptron added about $20 million
in cash to the original stock-only deal.
When the two mid-tier distributors announced their intentions to form
a new, top-10 player last June, Reptron's stock was trading at about
$12 per share. Last week, when the deal was terminated, Reptron's stock
was down to about $4, for a market capitalization of around $30 million.
"We just couldn't find a way to make it work," Goldberg said.
"It's very difficult to do a stock transaction in this market," said
analyst Clarke Walser of Walser & Associates, Arlington Heights, Ill.
Although analysts were not surprised that market uncertainty killed
the deal, some noted the two distributors had advanced fairly far
toward consolidation. Reptron lost its distribution-unit president,
Gary Bolohan, who resigned from the organization when Goldberg was
named to head the combined distribution operations. Goldberg himself
moved from All American's Miami headquarters to San Jose, where the
sales and marketing operations of the combined entity were headed.
"We were looking forward to the business combination, but we feel
comfortable with our customer base and our vendor base, and feel we can
operate very effectively in the marketplace today," Plante said. "We're
not belittling the fact that Gary is no longer with us, but we have a
management team in place and intact going forward."
Plante also said the termination was unrelated to any supplier
issues. "We have very strong relationships with our suppliers, who were
very supportive of bringing on All American, nor have we felt any
pushback from the All American suppliers," he said. As far as any other
constituencies are concerned, there is always anxiety with bringing two
companies together. But this is truly a market-conditions issue."
Executives stressed that both companies are positioned to remain
competitive on their own. Each has carved out a niche serving the
second- and third-tier OEM that has traditionally been overlooked by
the behemoths of the industry.
However, companies such as Arrow Electronics Inc. have set their
sights on that market: Arrow recently doubled its penetration of small
and midsize accounts by acquiring Richey Electronics Inc. and the
distribution business of Bell Industries Inc.
"Both of our companies are refocusing on accelerating our growth
plans in other ways," Goldberg said. Within the past few weeks, All
American announced its expansion into Mexico, and Reptron signed the
Rise Technology microprocessor line.
Analysts aren't so sure that either distributor will remain
independent.
"Are either of these companies a likely acquisition candidate going
forward? Yes," said analyst Rob Damron of Cleary Gull Reiland &
McDevitt, Milwaukee. "With the recent acquisitions by Arrow, it's
become apparent that small distributors can't survive in this economic
environment. You need significant economies of scale to get
profitability out of your operation."
"There's been a pervasive trend toward consolidation faced by the
tier-two and tier-three distributors," Walser said. "They can't match
the big guys in resources, and can't be as nimble as the little guys. I
think All American and Reptron face the same problems as they did
before the merger-gaining critical mass, and being able to compete
effectively with the big guys."
Reptron and All American had originally agreed on All American
shareholders receiving 0.2222 shares of Reptron common stock. The
amended agreement called for All American shareholders to receive $2
per share, consisting of a cash payment of between $1 and $1.10 and
between 0.1695 and 0.20 of a share of Reptron common stock. At the
time, executives of the companies continued to support the merger.
Reptron, which recently completed the acquisition of contract
electronics manufacturer Hibbing Electronics, has been actively linked
to acquisition talk.
Reptron was thought to be a suitor for Sterling Electronics, which
was acquired by Marshall Industries, and for Milgray Electronics,
subsequently acquired by Bell Industries. In the past, Reptron
successfully completed the acquisition of Western Micro Technology's
component distribution business, and Cronin Electronics, a regional
distributor in the Northeast.
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By: Barbara Jorgensen
Copyright 1998 CMP Media Inc.
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