ABB To Acquire Thomas And Betts: Fair Deal For Both Parties

Jan.31.12 | About: ABB LTD. (ABB)

The acquisition spree on Wall Street continues today as Swiss ABB (NYSE:ABB) announced its intention to acquire U.S.-based Thomas and Betts (TNB). Last week, deal activity already picked up as Eastman Chemical (NYSE:EMN) and Roche Holdings (OTCQX:RHHBY) announced intentions to acquire smaller competitors.

The deal

ABB announced that both boards have agreed to a transaction in which ABB will pay $72 in cash for each share of Thomas and Betts for a total consideration of $3.9 billion. The offer represents a 24% premium compared to Friday's close.

Of course the deal is subject to shareholder and regulatory approval. Shareholders appear pleased with the deal and there is little speculation about a possible higher bid. In today's session shares close up 23% at $71.31 ending the day about 1% below the offer. The offer at $72 represents an all time high for Thomas and Betts which never really managed to break through a long term resistance level at $60 a share.

2012 Outlook

In the light of full disclosure, Thomas and Betts announced its full year outlook to provide shareholders with most current information. For 2012 it expects earnings per share in the range of $3.90-$4.20 and mid-single digit revenue growth compared to 2011's $2.3 billion in revenue. The take-out price at $72 values Thomas and Betts at 18 times earnings and 1.5 times revenue.

ABB falls

In response to the announcement of the deal ABB's shares closed the day 3% lower in a market which closed slightly lower. The drop in ABB's shares represent a loss in market capitalization of $1.5 billion vs. an increase of $700 million in that of Thomas and Betts.

One should not read too much into today's action as the acquisition is relatively modest to the size of ABB which has turnover approximately 15 times as much as TNB. ABB trades at 16 times earnings and 1.2 times revenue implying ABB pays a slightly higher multiple for Thomas and Betts. No details were announced regarding expected synergies of the deal.

All in all, it seems a fair deal for both parties. Thomas and Betts' shareholders are unlikely to see its shares trade at this level on an independent basis and for ABB it is a nice addition to its portfolio.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.