Arrow sells off Gates/Arrow biz: Sale best way of shedding low-margin business, CEO Scricco says - Contribution

Electronic News, May 13, 2002 by Rob Spiegel

In a move to help bolster gross profit margins, Arrow Electronics Inc. of Melville, N.Y., has signed an agreement to sell basically all of the assets of Gates/Arrow Distributing to Synnex Information Technologies Inc. of Fremont, Calif.

Gates/Arrow is a business unit within Arrow's North American Computer Products Group, which sells software, printers, monitors and other peripherals to value-added resellers. The unit's business constituted roughly 5 percent of Arrow's March quarter sales.

The rationale for the sale comes down to margins, Arrow said, which are heftier on midrange computer products.

"It's quite clear that [Gates/Arrow] is a lower-margin business. We have become increasingly focused on the midrange computer business, which has a high gross profit," said Robert Klatell, Arrow executive VP. He also acknowledged that Arrow President and CEO Francis Scricco has made margin improvement the mantra of his leadership. "This sale is certainly part of Fran's strategy of focusing on higher margins."

Scricco characterized the sale to Synnex as the best way to get out from under the low-margin unit. "This transaction provides the most attractive avenue for Arrow to exit the Gates/Arrow business while best fulfilling our obligations to our customers, suppliers and employees."

Arrow originally purchased the company in 1994. Arrow said the transaction does not involve the company's midrange business, which includes SBM, SupportNet and MO CA, nor does the sale affect Arrow Enterprise Storage Solutions, SSD, CSD, Arrow/Wyle Computer Products, or other units in the North American Computer Products Group.

Arrow said it expects the sale to occur within 30 to 45 days, subject to approval under the Hart-Scott-Rodino Antitrust Improvement Act and other customary conditions. The purchase price will be a combination of cash and the assumption of state liabilities, which will be determined by the adjusted net book value of the assets and liabilities as of the closing date. In a statement, the company said, "Arrow anticipates a loss of approximately $15 million in connection with the disposal of Gates/Arrow."

Synnex Information Technologies distributes computer products and works with suppliers of PCs and servers, motherboards, CPUs, memory, storage, networking, communications and component products. The company had sales of $3.2 billion during 2001.