Distributors

How the Alcan acquisition may impact electrical distributors

By Bridget McCrea

On May 21, General Cable Corp., of Highland Heights, Ken., announced to the world that it would shell out $185 million in cash to buy the wire and cable business of mining company Rio Tinto. In a press release, General Cable said that it expected the acquisition of Alcan Cable to boost its revenues by between $650 million and $700 million, and that the move would also boost shareholder value for the near term.

General Cable is a Fortune 500 company and a developer, designer, manufacturer, marketer and distributor of copper, aluminum and fiber optic wire and cable products for the energy, industrial, specialty, construction and communications markets.

A producer of aluminum cable for the utility and building industries, Atlanta-based Alcan serves markets in the United States, Canada, Mexico, and China. The company made an attractive acquisition target for General Cable, which in one fell swoop added a new product line to its menu.

“The addition of aluminum construction cables further expands the range of products we offer to distributors serving electrical and industrial contractors,” said Gregory J. Lampert, General Cable’s president and chief executive, “and increases our capacity to efficiently serve our electric utility customers with transmission and distribution products.”

Anthony Kure, equity research analyst with KeyBanc Capital Markets, Inc., in Cleveland, isn’t surprised by the acquisition. He says that a significant chunk of Alcan’s business (85 to 90 percent) is located in North America and divided between utility and construction markets. The fact that General Cable decided to purchase it indicates that “a lot of these players are identifying North America as the place to be for the next several years, and are allotting their portfolios accordingly,” says Kure.

Kure points to Nexans SA’s recent $275 million purchase of AmerCable Holdings Inc., as proof of ongoing consolidation within the industry. “In terms of both aluminum cable and building wire, a lot of manufacturers see North America as having a long runway of upside,” says Kure, “not only for the housing market over the next few years, but also within the industrial and utility markets.”

In addition to the mergers and acquisitions that are taking place in the industry, some manufacturers are growing organically and effectively “gearing up” to meet what Kure sees as a growing demand for cable. Building wire manufacturer Encore Wire Corporation, for example, is currently constructing an aluminum facility in Texas to accommodate growing demand. “Encore is obviously expecting capacity to be used up on the aluminum side,” says Kure.

So how will the newest merger impact electrical distributors? Kure says larger distributors like WESCO International, Inc., and Rexel Inc., could benefit from the development. “The consolidation of suppliers kind of plays into the larger distributors’ hands,” says Kure, “particularly when it comes covering bigger accounts on a national basis, and providing more value-added services and supply chain integrity.”

While consolidation on the supplier side may end up helping some of the larger distributors, Kure says the downside could surface as less favorable pricing and terms. “Suppliers with more clout can infringe on pricing a bit,” he says. “That challenge is more acute for smaller companies. The larger ones can handle it because they have scale on their sides.”

McCrea is a Florida-based writer who covers business, industrial, and educational topics for a variety of magazines and journals. You can reach her at bridgetmc@earthlink.net or visit her website at www.expertghostwriter.net.

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