The name might not be that familiar, and the industries seem snooze-worthy, but this sizeable deal is stirring up plenty of chatter...
Koch Industries, one of the largest private companies in the United States, announced Monday it will buy electronic components manufacturer Molex Inc. (Nasdaq: MOLX) for $7.2 billion.
Under the terms of the deal, Koch will pay $38.50 per share in cash, a roughly 31% premium to Friday's closing price of Molex's common stock.
That values MOLX at 1.9 times revenue and 11.2 times earnings before interest, taxes, depreciation, and amortization (EBITDA), according to Bloomberg. That's more than twice the median price paid in comparable deals, reported Bloomberg, which was 0.8 times revenue and about 8.5 times EBITDA.
So, who is Molex and why are they worth $7 billion?
Why Molex (Nasdaq: MOLX) Is a Big Deal
For 75 years, Molex has manufactured electrical and fiber optic systems for things that run the gamut from connectors to sockets to antennas to switches used in cars to computers to cell phones. It started as a moldable plastic manufacturer in 1938.
Meanwhile, Wichita, KS-based Koch Industries, a multifaceted multinational company owned by the politically involved billionaire brothers Charles and David Koch, is predominately focused on businesses engaged in biofuels, oil refining, paper, pulp, chemicals, fertilizers, and packaging.
Koch said the acquisition provides a significant new platform for growth.
"Molex has become a global leader by focusing on product innovation and value creation, driven by its talented leadership and employees," Chief Executive Officer and Chairman Charles Koch said in a statement. "We look forward to jointly applying the capabilities of our two companies to help take both to the next level."
And how is Molex the key to a "new platform for growth" and the "next level"?
Apple Inc. (Nasdaq: AAPL).
MOLX and AAPL
Apple purchases connecters for its blockbuster-selling mobile devices from Molex. Sales to Apple accounted for some 14% of Molex's total revenue of $3.62 billion in the fiscal year ended June 30.
According to Molex's estimations, worldwide demand for the types of electronic components it makes is roughly $48 billion annually. But like rivals, Molex is feeling the pinch from smartphone customers who are continually on the prowl for the best prices amid growing global competition.
As a result, Molex suffered a 13% profit decline (to $243.6 million) in the latest fiscal year compared to a year earlier.
Now Koch can absorb Molex and become a supplier to Apple.
The timely deal came a day before Apple is set to debut two new iPhones. Expected is an update to Apple's flagship iPhone model. New (expected) features on the iPhone 5S include upgraded hardware that will highlight Apple's A7 processor, a dual-core chip that promises 31% more computing power. Other expected improvements are a superior camera and a fingerprint sensor.
Analysts also expect Apple to launch an iPhone 5C, dubbed a "low-end" iPhone. This budget model is forecast to help Apple expand into China, where the company holds very little market share.
Conveniently, Molex has a plant in China.
Molex has a total 41 plants in 15 countries. According to the company, it garners 57% of its manufacturing capacity in "lower cost areas" such as China, Poland, and Mexico.
The two new smartphones are projected to help Apple sell upward of 31 million iPhones in its fourth fiscal quarter. The new iPhone 5S and iPhone 5C could account for 10 million units sold during Q4. Moreover, if the company employs some extremely efficient supply chain management (from suppliers like Molex), then the number of new iPhones to be sold during the period could surpass 13 million...
Yes, that means huge profits for Molex - now Koch.
It's a big bet on an explosive - and lucrative - arena.
The Wall Street Journal:
Koch to Buy Molex for $7.2 Billion
Molex Will Be Acquired by Koch Industries for $7.2 Billion
The New York Times:
Koch Industries to Buy Molex for $7.2 Billion