Mega distributor Anixter is going to be acquired but by whom?
Initially, Anixter planned to go private, being bought by a private equity firm. Now, a new bidder, Wesco, has come along that has topped the private equity's firm price. But Anixter is resisting so far.
In this note, we examine what is happening, who the competitor may be (ADI/Resideo, Ingram Micro, TechData, Rexel, Wesco, etc.) and how this may impact the future of the company.
Update January 2nd and 3rd: We have added coverage on the increased rounds of bidding between Wesco and CD&R.
They have started making their rounds again. Their pitch wasn't to blatantly we will sell direct to your end user but watch out for their own internal partners. Say you have a regional person trying to get business and their is a local branch that already has that business. The regional person will do whatever to get the sales from the local branch, no matter the cost. These are words I heard directly.
After the meeting I was not ready to get back on board the Anixter wagon. It's only a matter of time.
They got better in my area. We have a large customer that we placed Sony in. Purchasing released the BOM to distributors instead of integrators and Anixter responded that they couldn't quote. CSC didn't (saw that coming) and quoted. Following the rules brought Anixter about $500k in Sony sales.
That said, my old Anixter rep Greg would call me on his way out of town from visiting my end users but as John said that was a long time ago.
Update: Also, Wesco is a possibility. They too are a publicly-traded competitor of Anixter, though with a smaller than Anixter market capitalization of ~$2.3 billion, which might make such a deal harder.
6 months ago I once again found myself up against Anixter.
I was told by a good friend of mine who works at Anixter that an Anixter employee said in passing that they will "squash me".
That friends phone call was then followed by Anixter courting my client with lavish parties and handing out major sporting event tickets.
Anixter then sent a letter to each manufacturer I purchase from stating that moving forward they will be the exclusive reseller of products to this particular client and that they are not to sell to me any longer.
Fortunately for me almost all of the manufacturers flat out rejected Anixters letter, it seems as if I won this battle but the war will wage on.
To clarify, that news from last month assumed no higher bidders would emerge after the private equity firm made their move. However, as Anixter has now revealed, a higher bidder has emerged (Competitor Party 'A') so the deal with the private equity firm is in limbo.
During the go-shop period, we did receive interest from another party. While we cannot disclose the name of the interested party, we are engaged in continuing discussions with the interested party. We cannot guarantee that the discussions will result in a superior proposal. At this time, we still have a signed agreement in place with CD&R and are working to consummate the transaction under that agreement. As you may have seen, we previously announced that CD&R raised its purchase price by $1.50 per share to $82.50 per share. [Emphasis Added]
$90 > $82.50...
In fairness, price is not always the only consideration, but it is going to be risky to turn down more money. For the shareholders, it does not matter if Anixter management's future is better with CD&R, if the money is less.
Bragar Eagel & Squire is concerned that Anixter’s board of directors oversaw an unfair process and ultimately agreed to an inadequate deal price. Accordingly, the firm is investigating all relevant aspects of the deal and is committed to securing the best result possible for Anixter stockholders
Net/net, unless, CD&R matches or beats Party A's offer, Anixter may be sued.
Surprised Amazon hasn't been circling around this opportunity. That would be a game changer for the industry's distribution segment. Sure, Amazon has their own distribution centers so why would they need Anixter's; however, moving giant roles of cabling to an industrial construction site is a lot different than shipping small boxes to someone's house, and Anixter has made recent reinvestments in this process.
A deal with CD&R, the private equity firm is now likely, as Anixter has announced that CD&R has upped their offer price and included effectively a bonus to shareholders if CD&R sells Anixter to Wesco or acquires Wesco in the following year after the deal is closed.
In particular, Sam Zell is now backing the CD&R deal and a vote in February 2020 to close the deal.
Interestingly, the announcement also says that CD&R tried to turn the tables and buy out Wesco in combination with Anixter but that Wesco refused:
We have been advised by CD&R that it has made a fully financed proposal to WESCO to acquire all of the outstanding shares of WESCO and that the Board of Directors of WESCO has determined that the proposal does not form a basis for discussions at this time.
the Board carefully considered the value and risk profile of WESCO’s offer comprising cash, WESCO common stock and a new series of WESCO preferred stock, for which there is no established market or trading price. The Board has unanimously concluded that CD&R’s improved all-cash proposal is superior to WESCO’s offer
The bidding is likely over and Wesco has lost. They could try to raise to $100, etc. but given Wesco's relative size and resources, they are unlikely to be able to support that.
But Wesco may still have won, in one sense. Their actions forced CD&R to increase the price paid by 14% (from $82 to $93.50 per share). This means will limit CD&R's returns on their investment and potentially the upside for Anixter's management in going private.
This means will limit CD&R's returns on their investment and potentially the upside for Anixter's management in going private.
Maybe that was Wesco's strategy all along? There are likely cuts Zell and Anixter management made over the years in quiet prep for sale that CD&R may have to reinvest to grow the business. A good tactic to try and limit your competitor.
WESCO's revised proposal is the only proposal that offers Anixter stockholders the ability to participate in the benefits of the combination, synergies and resulting value creation.
That is true, simply because CD&R would take Anixter private, meaning that current public shareholders would not have any upside from Anixter's post-public future. On the other hand, Wesco poses downside risk as their offer is more complex with 35% of it based on issuing new common stock and perpetual preferred stock. As for the upside, Anixter shareholders could take the proceeds from the CD&R deal and invest it in any number of other publicly traded stocks.
If Anixter's previous approach holds, we do not think 3.7% is enough of a premium, given the risks of the Wesco bid.
Inner Range has a great range of products. Their development came because they were independent and reasonable maneuverable.
Many of us were concerned at Anixter's buyout as no one was sure what their plans were for IR. The CSD part of their acquisition was obvious but not so for IR. There have been enough rumours around that Anixter was aiming to push Integriti into North America.
It still left many with concerns that development wouldn't quite be the same. New owners, new culture etc etc.
But the ink hasn't even dried on this last takeover and now we're staring at potentially another direction change and back to the unknown, potentially they might not see the value of trying to introduce a new product and spin it right out to another buyer.
No one should feel bad for CD&R losing here as their agreement with Anixter requires Anixter to pay CD&R $100 million to take the Wesco deal, which Wesco is paying in addition to the price for Anixter.
We will release a separate report analyzing the now agreed to deal.