Schneider Electric today disclosed that it has agreed to acquire American Power Conversion (APC) Corp., a manufacturer of uninterruptible power supplies (UPS), in an all-cash deal valued at $6.1 billion.
The deal would create a global UPS and infrastructure products powerhouse, combining Schneider Electric's MGE business unit, a force at the high end of the market, with APC, which is strong in entry level and mid-tier products. The deal, which is expected to close in the first quarter of 2007, has been approved by both companies' boards of directors, the two companies said.
"This acquisition is a significant strategic move for the company," said Jean-Pascal Tricoire, Schneider Electric's CEO, in a statement. "It allows us to greatly strengthen Schneider Electric in the fastest-growing segment of our core business: electrical distribution."
But while the deal is being positioned as a strategic acquisition, Schneider Electric will accrue cost savings as a result. The takeover of APC is expected to generate annual cost savings of $220 million for Schneider, 70% of which will be achieved by 2009, according to the statement.
The deal also enables APC to placate impatient investors, who had pressed management for better stock price appreciation, industry observers said. APC's management team, however, had remained steadfast and took a long-term view by continuing to invest in R&D and marketing for its next-generation, network-critical physical infrastructure (NCPI), which had an impact on earnings growth -- and, ultimately, the company's stock price.
Given the circumstances, the Schneider Electric offer may have been too good to refuse, said one financial analyst, who requested anonymity.
In the prepared statement announcing the acquisition, APC president and CEO Rob Johnson said the "transaction provides APC stockholders with an immediate and substantial cash premium for their investment." The $31 per-share offer price, in fact, represents a 30% premium over APC's closing price last Friday.
It's a costly acquisition for Schneider Electric, but one that could pay off in the long term, analysts said, as APC's revenues have remained strong amid a steady infrastructure build-out across the globe, and despite a string of quarterly declines in net income.
For example, in its second quarter of 2006, ended June 25, APC $560 million in revenue was up 17% from the year-ago quarter. However, net income was down 41% to $24.7 million from the prior year's period.
The end result of this transaction will be "an interesting, powerful combination," the unidentified analyst said, which will give Emerson, Eaton, and ABB -- the other big power management players -- a run for their money.
Emerson, specifically, which has owned Liebert Corp., since 1987, has been a stable force in UPS, industry watchers noted. But the power business landscape is shifting. In addition to APC's move to sell to Schneider, Rockwell Automation shook up the industry in June with its decision to put its $1 billion Power Systems business on the block. Although Rockwell has not disclosed a buyer for the business, the company recently said it expected a deal to be completed by year's end.
The draw to power management is keeping production reliable. "Companies like MGE and Emerson Liebert make their bread and butter on that kind of system," said Harry Forbes, an analyst with ARC Advisory Group. That kind of technology is important for "any kind of production process that has to have more reliability than the grid -- and the grid is not super reliable," Forbes said in an interview.
APC officials declined to comment further on the pending deal, and Schneider Electric spokespeople did not respond to Managing Automation inquires by press time.