New blockbuster mergers predicted

Electronic News, July 14, 1997 by Bernard Levine, Fred Guinther

Many also add strong praise for the deal, in which Raab Karcher claims third place among leading distributors worldwide.

Some industry participants are convinced a new round of industry consolidations has begun, as distribution becomes more global, with critical mass needed to survive. Speculation on all sorts of possible new combinations is rampant.

While not venturing any predictions on who might shakeout next, Burt Katz, president of Avnet's Time Electronics, echoed the views of many last week: "I would presume consolidations in the industry will continue."

The latest mega-merger will vault Raab Karcher into undisputed third place among industrial distributors worldwide, but still well behind number one Arrow and second ranked Avnet. Raab Karcher officials were reportedly busy here and in Europe last week putting the final touches onto the deal, as the tender offer for Wyle's shares officially began.

Many observers speculate that new combinations could be possible among any additional major distributors, as they try to keep up with the leaders. The rest of the top ranked distributors (with sales ranging in the billion dollar plus range down to near $100 million) are: Premier Farnell, Future, Pioneer-Standard, Marshall, Bell Milgray, Bell Microproducts, Kent, TTI, Sterling, Reptron, All American, Richardson, Nu Horizons, Richey, Sager, Digi-Key, Jaco, Interface, DAC Group, and Powell.

Meanwhile, any possible impact of the Wyle deal on the linecards of Wyle, or the other Raab Karcher U.S. units, is also fueling much speculation. Raab Karcher, clearly hoping there will be no linecard fallout, has said Wyle will remain "autonomous," reporting directly to Raab Karcher in Germany, and not to Raab Karcher North America. The separate Insight and EBV (formerly Axis and Seymour) units in the U.S. report into Raab Karcher North America, which in turn also reports to Germany.

Nevertheless, some sources suggest Wyle lines such as Motorola and National Semiconductor traditionally have not shared shelf space in the U.S. with Far East lines, which are strongly represented at Insight. Still, National is on the EBV linecard in the U.S., it is noted, but Motorola which franchises Raab Karcher in Europe, until now has not extended the franchise into the U.S.

Some in the industry wonder if American firms at Wyle with strict restrictions against sharing the shelf with Far East firms will wink at the fact that Insight has Far East lines because the different Raab Karcher units are run separately and autonomously. Some claim that such conflicts in the past have not been tolerated elsewhere, even at Avnet and Arrow. However, the Raab Karcher position is that its structuring, with the German parent acting more like a shareholder of autonomous units, is different from Arrow and Avnet, which have more direct control over their different operations. Also, some claim industry attitudes may be changing, citing the fact that Wyle's joint value-added venture with Marshall (a distributor with many Far East lines), has been proceeding smoothly since its establishment last year. The question now is whether such firms as Motorola will accept the distinctions drawn by Raab Karcher.

Attempts to reach distribution officials at Motorola and National Semiconductor last week for comment were unsuccessful. EN did reach Michael Rohleder, president of Raab Karcher North America, who also currently maintains his earlier duties as president of Insight while a replacement for him in that post is still being sought.

He emphasized there will be "no linkage" between Wyle and the Raab Karcher North America which he heads. "They will just happen to have the same shareholder," he said. "The Wyle organization will not come under the auspices of Raab Karcher North America, but will report directly to Germany." He also noted "Raab Karcher is a very dissimilar organization to Arrow or Avnet, where Arrow or Avnet corporate is very involved in the ultimate responsibility for their different companies. The Raab Karcher board of directors in Germany to which Wyle will report to directly as I do acts like a shareholder. Management of the individual companies is in the hands of the individual CEOs."

As for the deal's impact on his group, "we are treating it more as business as usual," he said.

Meanwhile, the deal provoked praise from the market research and analyst community. "I think the move by Raab Karcher acquiring Wyle is a great move on their part," said George Perris, president of Sierra Marketing Group, Rocklin, Calif. "It catapults them into a solid third place position globally."

Mr. Perris also believes the days of bloody linecard conflicts may be nearing an end. "As long as Raab Karcher maintains Wyle as an autonomous, separate facility, I don't think there will be any linecard fallout. Wyle should be able to maintain its present North American linecard as it is, without changes. As far as the linecard sharing controversies of the past, with suppliers being unwilling to share shelf space, this is an old-fashioned strategy nearing an end at this point in time. The main proponent of this strategy has been Motorola. With all of the changes that have taken place at Motorola, the sales management that was the prime movers of this strategy are no longer in place and I think we are on the verge of a new era where the shelf sharing issues will not be as significant as they once were."