Avnet to Buy Marshall for $648 Million
El Monte-based Marshall Industries, one of the country’s largest distributors of electronic components, has agreed to be acquired by rival Avnet Inc. in a $648-million cash and stock deal that would be the industry’s largest, the companies said Monday.
As a result of the deal, Phoenix-based Avnet, which has grown aggressively through acquisitions during this decade, and industry leader Arrow Electronics Inc. would control nearly half the $28.9-billion market for the distribution of electronic components in North America.
The acquisition by Avnet could result in significant cuts to Marshall’s 2,100-person work force because many of the companies’ operations overlap, but executives declined to estimate how many would lose their jobs.
Under the terms of the deal, announced before the stock market opened Monday, Avnet will offer $39 in cash or 0.82 share of stock for each Marshall share. Avnet would also assume $160 million of Marshall’s debt.
Marshall shares rose 78%, to $35.81 from $20.13, while Avnet’s stock fell to $45.19 from $47.81.
Although Avnet’s offer represents a 94% premium over Friday’s closing price for Marshall’s stock, it represents only 20% over the stock’s 52-week high. Analysts said that with the industry rebounding, Marshall shares are poised to rise.
Separately, Marshall said Monday that it expects to earn 33 cents to 35 cents a share in its fiscal fourth quarter, beating analysts’ expectations of 20 cents. It said it had sales of $1.7 billion in its fiscal year ended May 31.
Avnet said it will report annual sales surpassing $6.3 billion for the year.
“The industry is linked very closely to the semiconductor cycle, and we’ve gotten some very positive reviews on all the semiconductor providers and from many of the customers lately,” said Tom Hopkins, an analyst with Bear, Stearns & Co.
Avnet officials said that within nine months of the acquisition, which needs shareholder approval at both companies, they hope to squeeze out more than $40 million in annual cost savings.
“We get the efficiencies as well as the new features and benefits of a 24-hour-a-day global infrastructure,” said Robert Rodin, Marshall’s chief executive, who would become president for Avnet’s global strategic business development upon completion of the deal. “The market demands everything free, perfect and now, and we have the infrastructure to keep driving to meet the insatiable customer demands.”
Avnet and Marshall distribute electronic parts such as semiconductors, connectors and electromechanical devices that go into devices such as computers, stereos and video equipment. Marshall would be Avnet’s 21st acquisition since December 1994, but the industry’s crown still belongs to Arrow.
The industry has been consolidating for several years, with the top 10 distributors accounting for 81% of franchised North American sales last year, according to the National Electronic Distributors Assn. In 1995, the top 10 companies had 65% of the business.
Avnet, Marshall and others had distributed semiconductors manufactured by Motorola, which was so powerful that it could enforce a policy forbidding them from selling its competitors’ chips, industry watchers say. That demand, while protecting Motorola, discouraged consolidation because a company selling Motorola’s chips could not merge with one selling rival products without endangering its ties to Motorola.
But Motorola’s grip over the semiconductor business has loosened, forcing it to abandon its prohibition and clearing the way for two major acquisitions by Arrow last year and Monday’s Avnet-Marshall deal.
Even with the consolidation, smaller players say, there’s still room for them.
“We can focus on emerging and middle-market customers more, whereas the larger guys have a harder time giving them attention,” said David Herring, president of Projections Unlimited Inc. The Tustin distributor acquired a competitor itself last year, adding annual sales of $25 million.
