GLENVIEW, Ill. — As the distributor announced third-quarter earnings today (see below), it also announced news of its pending acquisition.
Anixter International Inc. has entered into a definitive agreement with an affiliate of Clayton, Dubilier & Rice (“CD&R”) to be acquired in an all-cash transaction valued at approximately $3.8 billion. The transaction will result in Anixter becoming a private company and is expected to close by the end of the first quarter of 2020.
Under the terms of the merger agreement, CD&R-managed funds will acquire all of the outstanding shares of Anixter common stock for $81.00 per share in cash. This represents a premium of approximately 13% over Anixter’s closing price on October 29, 2019, and a premium of approximately 27% over the 90-day volume-weighted average price of Anixter’s common stock for the period ended October 29, 2019.
“We believe this transaction is in the best interest of Anixter and our stockholders,” said Bill Galvin, Anixter’s President and Chief Executive Officer. “After careful and thorough analysis, together with our independent advisors, our Board of Directors unanimously approved this transaction with CD&R, which has a strong reputation and a track record of success in helping industrial distributors, like Anixter, prosper and grow. We are also pleased that this transaction appropriately recognizes the value of Anixter’s customer relationships, technology and solutions, financial management and global market position. It’s a great outcome for Anixter’s employees, customers and partners. As a private company, we believe Anixter will have greater flexibility to focus on and accelerate our long-term strategic priorities.”
Nate Sleeper, Partner at CD&R, said, “Anixter is an exceptionally well-positioned industrial distributor with leading market positions and differentiated capabilities that deliver strong customer value. We look forward to partnering with the outstanding management team, led by Bill Galvin, on initiatives to grow the business and further strengthen its competitive position while maintaining Anixter’s distinctive culture grounded in operational excellence, innovation, and an unwavering commitment to the company’s employees, customers, and global partners.”
It is anticipated that upon completion of the transaction, Bill Galvin, along with other members of Anixter’s executive management team, will continue to lead the company. Anixter’s Board of Directors has unanimously approved the agreement with CD&R and recommends that Anixter stockholders approve the proposed merger and merger agreement. Anixter expects to hold a Special Meeting of Stockholders to consider and vote on the proposed merger and merger agreement as soon as practicable after the mailing of the proxy statement to its stockholders.
The transaction is subject to the approval of Anixter’s stockholders, regulatory approvals and other customary closing conditions. The transaction has fully committed financing and is not subject to any condition with regard to the financing. Equity financing will be provided by Clayton, Dubilier & Rice Fund X, L.P., an approximately $10 billion pool of equity capital managed by CD&R; committed debt financing has been obtained from Bank of America (BAC), J.P. Morgan, Deutsche Bank Securities Inc. and Credit Suisse. Certain stockholders of Anixter, including entities associated with Sam Zell, Chairman of the Anixter Board, which own approximately 9% of the outstanding shares of Anixter common stock, have entered into a voting agreement with CD&R, pursuant to which they have agreed, among other things, to vote their shares of Anixter common stock in favor of the merger.
Under the terms of the merger agreement, Anixter may solicit superior proposals from third parties for a period of 40 calendar days continuing through December 9, 2019. In accordance with the merger agreement, Anixter’s Board of Directors, with the assistance of its advisors, intends to solicit superior proposals during this period. In addition, Anixter may, at any time, subject to the provisions of the merger agreement, respond to unsolicited proposals that are reasonably likely to result in a superior proposal. Anixter advises that there can be no assurance that the solicitation process will result in an alternative transaction. To the extent that a superior proposal received prior to December 9, 2019 or, in certain circumstances, 10 days thereafter leads to the execution of a definitive agreement, Anixter would be obligated to pay a $45 million break-up fee to CD&R. Anixter does not intend to disclose developments with respect to this solicitation process unless and until it determines it is appropriate to do so.
Centerview Partners LLC is serving as lead financial advisor, Wells Fargo Securities, LLC is also serving as financial advisor and Sidley Austin LLP is serving as legal advisor to Anixter in connection with the transaction. BofA Securities, J.P. Morgan Securities LLC, Deutsche Bank Securities Inc. and Credit Suisse are serving as financial advisors to CD&R, and Debevoise & Plimpton LLP is serving as legal advisor to CD&R.
Anixter International Inc. today also announced its results for the third quarter of 2019.
CEO Commentary
“Anixter delivered another strong quarter, with organic sales growth of 2.6% for the quarter, and growth in the NSS and UPS Segments. This organic growth was within our outlook range, and was achieved against a strong 2018 third quarter. Our two year cumulative growth was 10%. This brings our year-to-date organic sales growth to 5.4%. Consistent with our stated strategy, our revenue and gross margin growth funded our continued investment in innovation while driving enterprise value,” commented Bill Galvin, President and Chief Executive Officer.
Financial Results
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Three Months Ended |
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Nine Months Ended |
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(In millions, except per share amounts) |
September 27, |
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September 28, |
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Percent |
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September 27, |
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September 28, |
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Percent |
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Select Reported Measures |
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Net Sales |
$ |
2,222.2 |
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$ |
2,179.0 |
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2 |
% |
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$ |
6,593.3 |
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$ |
6,281.1 |
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5 |
% |
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Operating Income |
$ |
101.8 |
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$ |
89.5 |
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14 |
% |
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$ |
282.1 |
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$ |
222.4 |
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27 |
% |
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Net Income |
$ |
59.3 |
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$ |
47.6 |
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25 |
% |
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$ |
161.9 |
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$ |
114.5 |
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41 |
% |
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Diluted Earnings Per Share |
$ |
1.73 |
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$ |
1.40 |
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24 |
% |
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$ |
4.73 |
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$ |
3.36 |
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41 |
% |
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Diluted Weighted Shares |
34.3 |
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34.1 |
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1 |
% |
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34.2 |
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34.1 |
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— |
% |
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Select Non-GAAP Measures |
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Adjusted EBITDA |
$ |
125.5 |
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$ |
111.2 |
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13 |
% |
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$ |
351.4 |
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$ |
302.4 |
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16 |
% |
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Adjusted Net Income |
$ |
65.8 |
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|
$ |
54.8 |
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20 |
% |
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$ |
181.3 |
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|
$ |
146.4 |
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|
24 |
% |
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Adjusted Diluted Earnings Per Share |
$ |
1.92 |
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$ |
1.61 |
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19 |
% |
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$ |
5.30 |
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$ |
4.30 |
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23 |
% |
Reported (GAAP) Results
The following results are for the 13 weeks ended September 27, 2019, compared to the 13 weeks ended September 28, 2018. Unless otherwise noted, all comparisons are versus the prior year quarter. Both the current and prior year quarters had 63 billing days.
- Sales increased 2.0% to $2.2 billion. Current quarter sales include the unfavorable impacts of lower average copper prices and generally weaker foreign currencies. Adjusting for these impacts, organic sales increased 2.6%, as detailed in the table on page 9 of this release.
- Gross profit increased 5.3% to $446.4 million. Gross margin of 20.1% increased by 60 basis points.
- Operating expense increased by 3.0% to $344.6 million. Operating expense ratio of 15.5% compares to 15.4%.
- Operating income increased 13.8% to $101.8 million. Operating margin of 4.6% compares to 4.1%.
- Interest expense of $18.5 million compares to $19.3 million.
- Other, net expense of $1.2 million compares to $1.6 million.
- The effective tax rate of 27.8% compares to 30.6%.
- Net income of $59.3 million compares to $47.6 million.
- Earnings per diluted share of $1.73 compares to $1.40.
- Working capital as a percentage of sales of 16.9% compares to 18.3%.
The following results are for the 39 weeks ended September 27, 2019, compared to the 39 weeks ended September 28, 2018.
- Cash flow generated from operations of $206.4 million compares to $102.8 million.
- Capital expenditures of $27.5 million compares to $32.0 million.
Adjusted (Non-GAAP) Measures
Please refer to the tables on pages 9 – 14 for the reconciliations of our reported results prepared in accordance with U.S. GAAP to the non-GAAP measures. Unless otherwise noted, all non-GAAP financial metrics that follow exclude the expense items detailed on page 11 of this release.
- Adjusted operating expense of $335.8 million compares to $324.3 million, up 3.6%. Adjusted operating expense ratio of 15.1% compares to 14.9%. The increase in adjusted operating expense is due to $6.2 million of investment in innovation and business transformation strategies, combined with higher volume-related costs.
- Adjusted operating income of $110.6 million increased 10.8% compared to $99.8 million. Adjusted operating margin of 5.0% compares to 4.6%.
- Adjusted EBITDA of $125.5 million compares to $111.2 million, up 12.9%. Adjusted EBITDA margin of 5.6% compares to 5.1%.
- Adjusted effective tax rate of 27.6% compares to 30.6%.
- Adjusted net income increased 20.2% to $65.8 million.
- Adjusted diluted earnings per share increased 19.3% to $1.92.
Ted Dosch, EVP and Chief Financial Officer, commented, “Our solid organic growth, gross margin improvement of 60 basis points, and strong expense discipline allowed us to continue our investment in our innovation and business transformation initiative and drive an increase in adjusted EBITDA margin of 50 basis points over the third quarter of 2018, and operating leverage of 5.5 times.”
Segment Update
Network & Security Solutions (“NSS”) reported record third quarter sales of $1.2 billion, an increase of 3.6%, or 4.3% on an organic basis. NSS security sales of $524.5 million, which represents approximately 45% of segment sales, increased 8.2%. Adjusted EBITDA increased 12.8% to $92.0 million. Adjusted EBITDA margin of 7.8% compares to 7.2%.
Electrical & Electronic Solutions (“EES”) reported third quarter sales of $580.1 million, a decrease of 2.9%, or decrease of 2.2% on an organic basis. Adjusted EBITDA increased 7.8% to $39.5 million. Adjusted EBITDA margin of 6.8%, compares to 6.1%.
Utility Power Solutions (“UPS”) reported record third quarter sales of $462.8 million, an increase of 4.3%, or 4.4% on an organic basis. Adjusted EBITDA increased 17.1% to $28.1 million. Adjusted EBITDA margin of 6.1% compares to 5.4%.
Cash Flow and Credit Metrics
We generated $206.4 million of cash flow from operations year-to-date, which compares to $102.8 million generated in the prior year period, driven by both stronger earnings and working capital performance. Working capital as a percentage of sales was 16.9%, which compares to 18.3% in the prior year quarter. We invested $27.5 million in capital expenditures year-to-date, reflecting investment in information technology and facilities, which compares to $32.0 million in the prior year period.
Key capital structure and credit-related statistics for the quarter:
- Debt-to-total capital ratio of 38.2%, compares to 44.4% at the end of 2018
- Debt-to-adjusted EBITDA ratio of 2.4 times compares to 3.0 times at the end of 2018
- Weighted average cost of borrowed capital was 5.4% in both the current and prior year quarter
- Over $750 million available under secured accounts receivable, inventory facilities and revolving lines of credit
Outlook
Galvin commented, “We believe that the positive sales trends that we realized in the first three quarters of 2019 will continue, based on our solid backlog and pipeline trends, and discussions with our customers and suppliers. We continue to see good demand, tempered by macroeconomic uncertainty in certain markets and flat or decelerating trends in certain key economic indicators.”
Fourth Quarter Outlook
Our outlook for the fourth quarter sales growth is 2.0% – 4.0%, or organic growth of 2.5% – 4.5%. This outlook is being compared to a strong 2018 fourth quarter, which had a 5.1% growth rate. The cumulative two year growth rate would be 8.6% at the mid point of the outlook range.
Full Year Outlook
We are reaffirming our full year 2019 sales outlook of 4.0% – 5.0%. After adjusting for copper and foreign exchange, the organic sales growth outlook is 4.5% – 5.5%.
Based on our outlook for mid single digit sales growth and the related investment in working capital to support that growth, combined with our ongoing investment in innovation and business transformation, we reaffirm our previous estimate for full year cash flow from operations of $150 – $175 million and capital expenditures of $45 – $50 million, which will result in free cash flow of $105 – $125 million.”