Monday morning, electronic components maker Molex (click ticker for report: ) announced that it had agreed to be acquired by Koch Industries for $7.2 billion or $38.50 per share in cash. The deal represents a 31% premium to Molex’s Friday closing price.
We think Molex shareholders received a fantastic deal. Though the firm sports a solid yield, strong dividend growth potential, and a long history of dividend payments, shares were fairly valued, by our measure. In fact, the price Koch will pay for Molex exceeds the top end of our fair value range—a rare event.
Since Koch is a privately-held company with no allegiance to public shareholders, the notion of whether or not Koch made a strong investment matters very little to investors. However, it is interesting to note that the company will operate with the same management team, and there doesn’t appear to be any large changes in the cards. Akin to other conglomerates such as Berkshire Hathaway (BRK.A), Koch may simply be able to allocate free cash flow better than the current management team and perhaps squeeze out some cost savings.
Molex’s recent performance has been less than spectacular. In fiscal year 2013, revenue increased just 3.8% year-over-year to $3.6 billion, while earnings per share were 9.8% higher year-over-year at $0.90. Free cash flow was hurt from illegal activities in Japan, but still totaled $120 million during fiscal year 2013 (it was $347 million during fiscal year 2012). Selling the company for more than 20 times free cash flow (2012) seems like a great deal for shareholders, in our view.
Valuentum’s Take
Molex shareholders received a wonderful deal for their company, and we do not believe a higher offer will be brought to the table. The family that controls Molex, the Krehbiels, initiated the sale, and we doubt they would sell their company unless it was a great deal. Shareholders should be very satisfied with the offer, particularly in light of the company’s mediocre performance.