Thomas & Betts to acquire Augat

Electronic News, Oct 14, 1996 by Fred Guinther

Memphis, Tenn.--Two major connector companies agreed to join forces last week as Thomas & Betts Corp. and Augat, Inc. reached a definitive agreement for T&B to acquire Augat in an exchange of stock. The combined firm will rank among the top five or so connector companies worldwide, although well behind industry leader AMP.

Given T&B's stock price of 37-7/8 at the time of the agreement, the value of the transaction would be approximately $550 million, making it the largest acquisition in the 98-year history of T&B. The acquisition is expected to be completed before year-end.

T&B had sales of $1.24 billion in its fiscal year ending Dec. 31, 1995, and is a leading producer of connectors and components for worldwide electrical and electronics markets. Augat, whose sales for the same period were $535 million, is also one of the largest manufacturers of connector products, with broad applications in the communications, computer, automotive and industrial markets. Thomas & Betts is located in Memphis, Tenn., and Augat in Mansfield, Mass.

"The merger of our companies permits us to be a leader in several high-growth electronics markets and to create opportunities for unique synergies around the world," said T. Kevin Dunnigan, chairman and CEO of T&B, in a statement about the transaction. "We will be one of the five largest companies in the electronics connector industry," he said. "Our products and markets are complementary--not duplicative--and the combination will enable us to offer our customers a broader line of sophisticated electronics products in higher growth markets."

Roy Burton, T&B's president, told Electronic News, "We identified the need for a major acquisition in the electronics field some two years ago and have been searching for the right company. Augat is strategically a very good fit for us. Our interconnection and automotive lines are very complementary with little overlap, and their communications business takes us into a new area. We have been looking at the cable TV business for some time, and see it as a major growth opportunity."

Asked if the acquisition would bring changes in T&B and Augat's distribution alignment, Mr. Burton said, "It's much too early to talk about that." However, he noted, "We share a number of major distributors, and the merger will bring us added size that should increase our importance with all of them." Among the distributors he mentioned as representing both T&B and Augat are Avnet, Arrow, Pioneer, Newark, Sager, Insulectro and Control Design. "The real issue is the complementary nature of this acquisition," Mr. Burton concluded.

On the subject of earnings results, T&B's Mr. Dunnigan said the company expects the acquisition of Augat to be neutral to slightly accretive to 1997 earnings and moderately accretive thereafter.

"Although Augat had not been actively seeking a strategic partner, a merger with T&B presents an outstanding opportunity to leverage our respective strengths," stated John N. Lemasters, chairman and CEO of Augat. "Thomas & Betts is a perfect fit because its corporate culture and business values are similar to ours. Together we can offer a greater breadth of products to worldwide markets."

Mr. Lemasters did not elaborate, but an Augat spokesman told Electronic News, "The acquisition has been favorably received by our principal shareholders and our employees as well."

Under terms of the agreement, T&B will exchange 0.68 share of its common stock for each Augat share, subject to exchange rate adjustments should the price of T&B's stock fall below a certain minimum or exceed a certain maximum level. The transaction is structured to be a tax-free exchange for Augat shareholders, and is intended to be accounted for under the pooling-of-interests method.

Initial analyst comments were favorable. Ron Bishop of West Chicago, Ill.-based Bishop & Associates, publisher of The Bishop Report, said in an interview with Electronic News, "It's good for both companies. Augat has been in three separate businesses--interconnection products, automotive wiring systems and components, and communications-- without being the industry leader in any of them. Merging with Thomas & Betts helps Augat to gain bigger scale and helps a lot in competing with connector giants like AMP, Molex, Berg and Amphenol.

"Another important aspect," said Mr. Bishop, "is that Thomas & Betts has been acquiring a lot of electrical companies in recent years, which has left industry analysts wondering if their connector business might be for sale, an idea T&B management has consistently rejected. The acquisition of Augat certainly convinces anyone who didn't believe in T&B's dedication to the connector industry that they are in it to stay. It's a major commitment.

"The two companies have strongly complementary products," Mr. Bishop added. "Augat's strength in the automotive wire harness field, for example, will be mutually strengthening. What's more, Augat brings with it about $150 million in international business which will be valuable in competing with the global connector companies."