Vishay to Kemet: Can we talk?

Electronic News, July 1, 1996 by Bernard Levine

Malvern, PA.--Passive component maker Vishay Intertechnology last week launched a takeover bid for capacitor rival Kemet Electronics, whose board of directors was preparing to meet over the weekend or early this week to respond.

Vishay has offered a premium over current stock values, but did not give an exact figure, and analysts note stock prices of both firms have been battered in recent months with slumping sales for tantalum capacitors and other passives that were booming less than a year ago. With some analysts placing a possible Kemet price tag in the billion dollar range, both stocks rallied after word of Vishay's initiative surfaced last week, but both remain well below their 12-month highs.

On Wednesday morning, Vishay chairman/CEO Felix Zandman said in a news release that his company had delivered a letter to Kemet, addressed to its chairman/president/CEO, David Maguire, "proposing to pursue friendly discussions regarding a merger of the two companies, either through a cash purchase, a share exchange, or a combination of the two." Kemet that afternoon said its board would "meet to discuss the contents of the letter which was made public by Vishay this morning and will respond at an appropriate time." Kemet gave no indication of how it viewed the proposal.

It could not be learned if there has been any other communication or contact about the proposed deal between Dr. Zandman and Mr. Maguire, either before or after the delivery of the letter. Neither returned phone calls from EN last week seeking comment.

Glenn Spears, Kemet senior VP and secretary of the board, said Friday "it would be premature for Dave to comment further than what we have already said. It would be foolish to speculate further until the board meets." He said Kemet was trying to gather its board members together and hoped to meet "shortly," possibly over the weekend, or early this week. "The board will meet and we will act in the best interests of all the shareholders and employees," Mr. Spears said.

He said that as far as he knew, there has not been any other contact between the two companies. What will the firm's response be to the Vishay offer, he was asked. "I have no idea until the board meets," he replied.

Asked about a possible price for Kemet, he said "I have no idea what the fair market value is today," but added "prices are being bantered about a little recklessly. No price has been discussed so far, as far as I know, between the principals. The prices being bantered about are just speculation of analysts, to the best of my knowledge."

As for Kemet's pursuer, Mr. Spears said "We have always had a high regard for Dr. Zandman and his company. They have always been a good competitor."

Vishay's proposal would merge its Sprague tantalum capacitor line with Kemet's tantalums, which could raise antitrust concerns, some analysts suggest. The pair have long fought it out at the top of the domestic ta cap market, which has slumped this year following shortages last year. They also square off worldwide against Japanese and other ta cap makers, however. Kemet also has a major position in ceramic capacitors, which Vishay also produces, along with a broader line of other passives.

Greenville, S.C.-headquartered Kemet, once part of Union Carbide, became independent in a management-led buy-out several years ago. Vishay, meanwhile, has staked out a major position in passives through acquisitions of Sprague, Vitramon and other firms in recent years.

Analysts note Vishay has an ongoing drive to relocate some of its U.S. and European operations to Mexico and Israel, which could possibly raise concerns at Kemet. Dr. Zandman told the recent Bear Stearns Technology Conference in New York that his firm's goal was to have 50 percent of its workforce in lower cost areas, and that would require relocating an additional 3,800 jobs from Germany and the U.S. to Israel and Mexico to save on labor and tax costs (EN, June 24). Vishay also indicated at that time it would reduce overall employee rolls by 1,300, and estimated it will record a pre-tax charge of $24 million (approximately $16 million after tax) in the quarter ending June 30. Vishay had 1995 sales of $1.2 billion. Kemet net sales for its fiscal '96 ending March 31 were $634 million.

In his letter to Mr. Maguire last week explaining the logic of the proposed merger, Dr. Zandman noted "In light of the recent disappointing performance of your shares on the Nasdaq and ours on the New York Stock Exchange following relatively recent successful public offerings, I am constantly asked by stockholders, analysts and others why our two companies do not merge. They see the obvious--that a combination of our companies represents an exceptional opportunity for both your stockholders and ours to realize value well in excess of current market levels and to create an exciting and dynamic entity. After reviewing the publicly available information on your company, and relying on our knowledge and understanding of the current and future passive electronics landscape, we believe market conditions are ripe for joining forces. We stand ready immediately to pursue discussions with you toward a friendly acquisition in which we would either purchase all of the shares of your company's capital stock for cash at a premium above current market prices or to effect a merger of our companies by exchanging shares -- or to consider some combination of the two."