Anixter Acquires Pentacon in Bankruptcy

John Wolz

Pentacon Inc. announced it has sold its assets and operations to Anixter International Inc. for $121 million after filing for bankruptcy as part of a reorganization plan.
In a May 23 conference call to suppliers Pentacon CEO Rob Ruck said that though it is an asset acquisition, Pentacon would pay liabilities. Suppliers will be paid within 120 days and paid accrued interest, he said.\
Deliveries after May 24 would be paid in the normal course of business.
Billionaire Samuel Zell is the chairman of Anixter and owns about 14% of the stock.
The acquisition has been approved by both companies� boards, but it must still be approved by the bankruptcy court in Texas. The purchase price is in cash and subject to certain potential purchases price adjustments.
The sale also has the support of the holders of a majority of Pentacon�s $100 million of 12.15% senior subordinated notes that were due April 1, 2001. In addition Pentacon reached an agreement in principle with lenders to provide debtor-in-possession financing during the Chapter 11 process.
Anixter, listed as AXE on the New York Stock Exchange, was founded in 1957 and currently has a $400 million line of credit with a 35% debt to current assets ratio.
Anixter is a wire, cable and connector parts distributor in the data transfer industry.
Ruck said that since reaching an agreement for debt restructuring the company �has negotiated an agreement with Anixter International Inc. that offers even greater overall value to the company�s stakeholders and our customers, partners, suppliers and employees.�
Anixter gains Pentacon�s C-class components and services.
�Anixter�s excellent reputation and solid financial position will provide a great deal of assurance to all that work for and do business with Pentacon,� Ruck said. �The synergy between products and services �will substantially broaden the offerings provided to our respective customers.�
In a �Fastening on an Acquisition� analysis of the acquisition Merrill Lynch noted that Pentacon �broadens Anixter�s electrical and industrial product offering to a similar set of OEM customers through the addition of a company that goes to market and services its customers in a comparable manner to Anixter. The two companies could also benefit from cross-selling opportunities over time, according to management.�
Merrill Lynch suggested that under �a more favorable capital structure, we think this business can offer Anixter attractive returns.�
Pentacon had announced last month a restructuring agreement to �significantly de-leverage the company.� That deal would eliminate between $60 million and $65 million of debt, reducing its pro forma debt to $95 million. The lenders would receive 90% of stock and $35 million principal of newly issued senior notes due 2007.
The agreement provided for an out-of-court exchange offer or a prenegotiated Chapter 11 bankruptcy.
While Pentacon has reached �understandings,� lenders had notified the company that it is not in compliance with certain financial covenants and the debt could be accelerated.
Pentacon Revenue Down 22%
Pentacon reported first quarter 2002 revenue dropped 22% from the same period last year to $55.8 million this year.
EBITDA was $5 million, compared with $6.3 million for the first quarter of 2001.
Pentacon�s $25.6 million first quarter 2002 aerospace revenue was down 2% from the previous quarter and 27% from the opening quarter of 2001. The company attributed the reduction to �lower levels of noncontract business resulting from the overall reduction in aerospace activity� due to September 11th. Aerospace operating income declined 25% from the first quarter of 2001.
Industrial group revenue increased 7% from the last quarter, and operating income 57% from the final quarter of 2001. Compared with 2001�s opening quarter, revenue declined $6.12 million and operating income $0.7 million. Pentacon attributed the first quarter decline to lower demand for telecommunications, power generation, heavy truck and certain transportation customers.
Chatsworth, CA-based Pentacon distributes fasteners and small parts and provides inventory management. Pentacon has 30 distribution and sales facilities in the U.S. and sales offices in Europe, Canada, Mexico and Australia. Web: Pentacon.com and Anixter.com
Introducing Anixter to the Fastener Industry
� Anixter International Inc. is a global distributor of wiring systems and networking products. Anixter sells about 92,000 items from more than 1,000 suppliers to 85,000 customers. Average order size is $1,700.
� Anixter�s 2001 sales grew 10.5% from the previous year to $3,144 million (Pentacon�s revenues were $259 million). Net income grew 61.5% to $30.3 million. The number of employees increased 16.9% to 4,900 during 2001.
� The stock price was $29.36 on May 24, 2002. It has ranged from $22.40 to $32.00 in the past 52 weeks. P/E 20.4x
� Chairman Samuel Zell owns about 14% of Anixter stock. Robert Grubbs Jr. is president and CEO.
� Top competitors include Cable Design Technologies, Graybar Electric and Wesco International.
� Merrill Lynch currently rates Anixter as a �long-term buy.�
�Based on Pentacon�s most recent operating results, we think the acquisition could be accretive almost immediately. We plan to adjust our model after the transaction is completed.�
� Anixter is headquartered at 4711 Golf Rd., Skokie, IL 60076-1278 Tel: 847 677-2600 or 800 ANI-XTER Fax 847 677-9480 Web: Anixter.com
New York Stock Exchange symbol: AXE �2002 FastenerNews.com