Last Monday, Wichita-based Koch Industries acquired Molex, the 75-year-old connector company and Apple parts supplier. Both companies look to close the deal by the end of this year, which depends on both regulatory and shareholder approval, according to a Molex FAQ on the deal. Privately-held Koch picked Molex up at a premium, dishing out $7.2 billion, or $38.50 per share. The news converges on Apple’s announcement yesterday of two more products, the iPhone 5C and 5S.
Molex provides Apple with products like multimedia connectors, or as they’re more commonly known: “Firewires.”
Molex creates electronic parts like connectors, fiber-optic products, antennas and sockets for a variety of verticals including data and computing, telcos and automotive. The company reported gross profitability at more than $1.06 billion in 2013, down half a percentage point from 2012. With the deal struck, Molex joins the Koch Industries portfolio, which already includes Georgia-Pacific LLC, The Matador Cattle Company, and more resource-based ventures bearing the Koch name like Koch Minerals, LLC and Koch Pipeline Company, LP.
Koch Industries and Molex share similar origin stories, as Koch Industries is led by brothers David and Charles Koch and Molex, until recently, was owned and operated by the Krehbiel family.
Per the deal, Koch now owns all Molex’s outstanding common, Class A, and Class B stock––and laid down a pretty penny more for the shares than they traded for the previous Friday. (Stocks of the common, A and B variety are distinguished by associated voting rights.) According to the release, Koch dropped capital at a 42 percent equity increase (up 31 percent for common stock, 56 percent for Class A common stock). Obviously, premiums make deals more appealing to investors (get a brush-up here.)
It is widely accepted that most companies are merged with a premium over their stock value, around 20%. Molex, with 42 percent, seems in line with recent acquisitions which according to pundits and financial sources are higher in 2013 than usual.
Molex reports net revenues at 3.6 billion worldwide in 2013, 3.8 percent more than last year. The company, based in Lisle, IL, chose this moment for acquisition to reward longtime supporters and employees. “After 75 years this was a difficult decision, but our board of directors and our family believe that this transaction…provides outstanding benefits for all our stakeholders,” said Fred Krehbiel, co-chairman of the Molex board in the release. “The transaction is expected to provide substantial opportunities for our worldwide employees, many of whom have spent much of their working lives at Molex and are responsible for the company’s long term success.” Following the deal, the Krehbiels will give up their stock and positions and leave the company to Koch.
The news makes no mention of future product releases or jumps into new sectors––only of a continued “track record of growth and investment in people, innovation and technology,” says Martin Slark, CEO and vice chairman of Molex in the release.
Documents Molex filed with the SEC say the company’s sales to Apple account for 14 percent of net revenue in 2013, though they’re not Apple’s only connector provider. Risks to the business, also listed in the papers, provide clues to reasons for an acquisition now. According to the company, Molex faces intense competition, industry consolidation, a dependency on new products and pressure to lower prices.
Though its hard to imagine an electronic parts producer struggling in a digital age, the industry brings its own challenges. And a partnership with Koch could give Molex room to work, so that they won’t have to innovate under the gun (and on the cheap) in a capital-intensive and crowded industry. “Connector Supplier” ranks Molex third on the top 10 list of connector manufacturers, as it pulled more than $3.5 billion in sales two years running (2011-2012). In past months, the industry’s looked a little bleak; but hopefuls wait for a 4.4 percent overall connector sales increase before end of full year 2013.
As the Krehbiels bow out, the Kochs are poised to take Molex to new heights. Though Molex has already scaled international (they have 41 manufacturing locations in 15 countries; and just, 29 percent of its 2013 net revenues stem from the Americas), Koch Industries’ money, resources and guidance will help further penetrate their markets. Currently, Molex has captured about 8 percent of the connector industry: a number they’re looking to increase.
“Once the transaction is completed, Molex will be even better positioned to navigate an evolving industry,” the company said in an employee FAQ about the deal. “With Koch behind us, we will be able to protect and grow our market share, ensure continuity for customers, provide growth opportunities for our employees, and maintain the overall stability of the business.”
Implications of the deal may affect Apple on the political, rather than technological, front. Already, news sources have penned headlines that poke at Koch Industries’ leadership’s politics; yesterday, the Daily Beast ran an article titled, “Get Ready to Support the Kochs, Liberal Apple Fans.”
As to business, it’s going on as usual for now, Molex says. Until the year’s out and the deal’s closed, “we need all employees to remain focused on their day-to-day responsibilities,” the employee FAQ states.