AVX acquires American Technical Ceramics Corp.
Electronic components maker American Technical Ceramics Corp. (AMEX: AMK) agreed to be acquired by passive electronic components manufacturer and supplier AVX. Corp. (NYSE: AVX) Monday for $231 million in cash.
Shares of American Technical Ceramics (ATC) surged 42% or $7.18 on the news to hit a fresh 52-week high of $23.99 at Monday's close.
“The acquisition will enhance AVX’s capabilities in the Advanced Products Group,” Brian White at Jefferies & Co. wrote in a research note. “[However] we question the premium paid for ATC, which may be a function of the AVX's overly liquid balance sheet and the attractive margin profile of ATC.”
AVX will pay $24.75 in cash without interest for each outstanding share of small-cap American Technical Ceramics’ stock. The purchase price represents a 47% premium over ATC’s closing price of $16.81 on Friday. Each option will be converted into the right to receive $24.75 in cash minus the applicable exercise price.
White further commented that the “transaction does not have much overlap with AVX in terms of component lines as ATC focuses on high reliability products, while adding strong RF capabilities.”
White, who has a hold on AVX, forecasts a 12-month target price of $17.50 for AVX. AVX currently trades at a forward P/E of 18 times fiscal year 2008 earnings.
According to White, ATC has a more attractive margin profile than acquirer AVX. ATC had a gross margin of 36.9% for the first nine-months of fiscal 2007 and an operating margin of 14.1% compared to AVX’s gross margin of 18.8% and operating margin of 11.1% for the most recent quarter. During fiscal 2006, sales at ATC rose 15% to $84.1 million, after growing sales by 19% in fiscal 2005.
“The combination of AVX and ATC offers exciting growth potential for the years ahead,” said John Gilbertson, President and CEO of AVX Corporation. “The addition of ATC further broadens AVX's offering in High Reliability Products. They are well recognized for their leadership in the area of High Frequency Applications for a broad range of commercial and military applications.”
The transaction is subject to approval by ATC’s shareholders as well as regulatory requirements. ATC’s CEO and certain affiliated shareholders, who represent approximately 49% of ATC’s outstanding common stock, have agreed to vote their shares in favor of the deal.
“AVX is one of the leaders in our industry. They have a great understanding of and appreciation for our business and bring to bear the technological, marketing and financial resources that will enable ATC to move to the next level,” said ATC CEO Victor Insetta.
