Arrow, Premier Farnell Deal

Electronic News, Dec 23, 1996 by Bernard Levine, Fred Guinther

Melville, N.Y.--Arrow Electronics Friday agreed to acquire all of Premier Farnell's non-catalog industrial distribution operations in Europe and North America in a $300 million deal.

The purchase, when completed next year, will sharply boost Arrow's passive and electromechanical branch operations in Europe, throw in extra mainstream semiconductor distribution business as well, and add a total of $500 million in sales to Arrow's current $6.5 billion, which already tops the distribution market, $1.4 billion ahead of second-ranked Avnet. Premier Farnell, meanwhile, the owner of Newark Electronics, will continue as a leader of the catalog sector of the distribution business. Premier Farnell was formed earlier this year in the merger of the U.S.'s Premier Industrial with Farnell Electronics plc of England.

A possible deal between Arrow and Premier Farnell in which the latter would shed its non-catalog operations has been among numerous possibilities speculated upon in the industry gossip mill in recent weeks, with chatter about other possible transactions continuing (see Off the Shelf, page 28). Following intensified speculation in recent days, Arrow said Friday it signed a definitive agreement to acquire the non-catalog, industrial volume electronic component distribution businesses--Farnell Electronics Services (FES)--of Premier Farnell plc for approximately $300 million.

The transaction includes all Farnell non-catalog operations in Europe, North America and Canada, but does not affect the company's Newark and Farnell Electronic Components (FEC) catalog operations.

With annual sales of approximately $500 million and branch operations and sales offices in 15 countries, the FES Group is one of Europe's major distributors of semiconductors, passive and electromechanical components and interconnect products to original equipment manufacturers and other industrial customers.

"The FES businesses will strengthen our ability to serve our customers throughout Europe," said Stephen P. Kaufman, chairman and CEO of Arrow, "and their strength in passive, electromechanical and connector products is a natural complement to our own leading position in semiconductors. It is our expectation that the acquisition will be additive to earnings in 1997."

Robert E. Klatell, Arrow executive VP, general counsel and treasurer, said, "This is a nice, synergistic deal between two leaders in different aspects of the industry." The acquired businesses "complement our strengths. It is a nice fit," he added. He confirmed that Arrow acquires Premier Farnell's non-catalog businesses in North America, as well as Europe.

Wetherby, England-headquartered Premier Farnell group chief executive Howard Poulson commented, "Since the acquisition of Premier Industrial Corp. in April this year, the size of the group has increased in both geographical and financial terms. FES now represents a relatively small proportion of the group's profits and, as we no longer view the high-volume distribution business as central to our longer-term strategy, this disposal is a logical step for us. Notwithstanding the continuing highly competitive trading conditions, I am pleased that we have secured a good price for the business. The disposal reduces our exposure to the more volatile end of the component market and places us in an excellent position to focus on our core high margin catalog business--global electronic and industrial components distribution."

Premier Farnell is the result of a merger begun early in 1996 (EN, Jan. 29) and completed in April, in which Farnell Electronics of the U.K. acquired U.S.-based Premier Industrial Corp. for $2.8 billion. The combination elevated Premier Farnell to the number 3 position on Electronic News' Top 25 Distributors chart, but the pending sale will lower its ranking. Prior to the merger, Farnell's sales of about $800 million were said to comprise some $500 million from the FES mainstream industrial distribution business and $300 million from Farnell Electronic Components (FEC), the company's catalog operations, which sold product in the U.S., Canada, England, Europe, Australia and Asia.

The companies say they will also enter into a trading agreement under which Arrow will become a preferred supplier to Premier Farnell's remaining core catalog business. Similarly, Arrow will be able to source certain of its product requirements from Premier Farnell.

Last August, Premier Farnell was restructured into five operation divisions: Volume Distribution Division, Catalog Distribution Division, Appliance Spares Division, Industrial Products Division and Product Manufacturing Group.

FES is the Volume Distribution Division. It was formed in 1994 following the acquisition of ESD from Northern Telecom in 1991 and Multicomponents, the pan-European and North American electronic component distribution businesses purchased from ITT in 1993. It is a broad-line distributor with principal stocking locations in the U.K., Germany, Sweden, France, Italy and Canada.