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TDK to Pay $1.9 Billion for German Parts Firm

August 1, 2008

By From news reports

TDK, the world’s largest maker of magnetic heads used in disk drives, said Thursday that it would buy the German electronic parts manufacturer Epcos for $1.9 billion in cash, seeking growth overseas and a push into industrial-use components.

TDK will make a friendly tender offer for all shares of Epcos at euro 17.85, or $27.81, apiece, a 29 percent premium to Wednesday’s close and at euro 1.2 billion marking the biggest acquisition by a Japanese electronic parts maker on record.

The planned acquisition still requires regulatory approval in Germany, it said.

Upon completion of the public tender, TDK will combine its components business with Epcos’s and set up a new company, tentatively called TDK EP Components KK. The plan is subject to approval by TDK shareholders, the company said.

Japanese electronics manufacturers once dominated in products from computers to portable music players, but now often lag rivals in the United States and Asia. For the advanced electronic parts that go into such products, however, Japanese firms like TDK and its chief rival, Kyocera, remain among the world’s leaders.

TDK is strong in Asia, selling parts for personal electronics like the magnetic readers that read and write data inside hard disk drives. Epcos is focused more on Europe and is stronger in parts for cars and industrial manufacturing.

TDK now owns 2.5 percent of Epcos and has secured delivery of an additional 7 percent.

A successful deal would raise TDK’s global market share of capacitors and inductors just as price drops hit earnings at rivals like Murata Manufacturing and Kyocera.

“TDK’s offer contains a fair premium,” said Frank Schneider, an analyst at Alpha Wertpapierhandels in Frankfurt. “I don’t think there will be a counterbid.”

TDK, which makes tiny components used by the hundreds in mobile phones, personal computers and flat-panel televisions, aims to increase sales of industrial-use parts through the acquisition and slow the pace of price declines.

Epcos is the biggest European maker of passive electronic components that control the flow of electricity, supplying capacitors, inductors and surface acoustic wave parts for use in cars and consumer electronics.

“Epcos brings to the deal its strong position in the growing automobile and industrial machinery markets in Europe,” TDK’s president, Takehiro Kamigama, said in a statement to the Tokyo Stock Exchange on Thursday. “There are also benefits in sales and research and development.”

Formed in 1989 as a joint venture between Siemens and Matsushita Electric, Epcos had sales of euro 1.4 billion, or $2.2 billion, in the year ended September 2007.

Combined with Epcos, TDK’s annual sales would total about yen1.1 trillion, or $10 billion, making it the second-largest components maker in Japan after Kyocera, which logged sales of yen1.3 trillion last business year.

Originally published by AP, Reuters, Bloomberg.

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