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TDK, Epcos merger to streamline operations

Posted: 04 Aug 2008 ?? ?Print Version ?Bookmark and Share

Keywords:foundry? manufacturing? electronic components?

TDK Corp. and Epcos AG have announced the signing of a business combination agreement (BCA) that combines Epcos with TDK's activities in the electronic components field. The merger will create a stronger presence for the industry-leading electronic components company across customer sectors and regions. The agreement stipulates the basis of the partnership and the road map for its implementation.

At the initial stage, TDK will present a public tender offer for all outstanding shares of Epcos and will offer Epcos' shareholders 17.85 euros ($27.77) in cash per share. This represents a 52-percent premium over the three-month average closing share price on the Frankfurt Stock Exchange (Xetra) prior to the announcement date and a 29-percent premium over the closing price (Xetra) on July 30, 2008. According to the anticipated calculation, this offer would value Epcos at approximately 1.2 billion euros ($1.86 billion) in equity value. With the net financial liabilities, pension obligations and minority interests, this gives an enterprise value for Epcos of around 1.4 billion euros ($2.1 billion). At present, TDK currently has a share of about 2.5 percent of the current registered share capital of Epcos and has secured delivery of around 7.0 percent.

The offer is expected to be published after the German Federal Financial Supervisory Authority (BaFinBundesanstalt fur Finanzdienstleistungsaufsicht) approved the document by end of August 2008. Everything has yet to be subjected to certain conditions, like a 50-percent plus one share minimum acceptance threshold on a fully diluted basis, and regulatory approvals. TDK is anticipating that the offer will be finalized by October. It is expected that the all-cash transaction will be managed by a bridge loan.

What to expect
After the completion of the public tender offer, TDK will start the process of streamlining its relevant passive components business. This aims to merge all its Epcos' business under a new name. Provisionally, the company will be named TDK EP Components KK. However, this has yet to be approved in the TDK's general shareholders' meeting.

The parties have agreed that the Board of Directors of the new company will consist of three representatives from TDK and two from Epcos to oversee the management of the combined passive components businesses of TDK and Epcos. Whatever will be implemented within Epcos needs the approval of all Board Members.

The new company Board of Directors embraces all undertakings of Epcos' employees and customers and seeks to preserve Epcos' present headquarters. The well-established TDK and Epcos brands will still be used in the market.

Achieving a dynamic venture
"With the signing of the BCA, we are happy to achieve an important milestone toward a promising partnership," said Takehiro Kamigama, president and chief operating officer, TDK. "The customers, employees and shareholders of both companies will benefit from the merger and our very attractive offer presents full and immediate value to the shareholders of Epcos," he added.

The Supervisory Board and the Management of Epcos are in full support of the transaction and are committed to Epcos joining TDK. "TDK is one of the world's most successful components companies and will definitely be an excellent partner," said Klaus Ziegler, chairman of Epcos' Supervisory Board. "With this strategy-oriented and financially strong majority shareholder, our company will noticeably gain standing and create an especially solid basis for future success," he added.

He noted that the merger will strengthen the competitiveness and enterprise value of both companies. "The combination will create an industry-leading global player," said Gerhard Pegam, president and CEO, Epcos.

Wider marketability
"TDK is well established primarily in Asia, the largest growth region, as well as in all application areas, particularly in consumer electronics and IT," said Kamigama. "The especially strong position of Epcos in Europe in automotive and industrial electronics markets and its global importance in mobile communications constitute an excellent fit. In addition, we expect synergy effects in R&D, purchasing and sales," he added. "Overall, the highly complementary nature of the businesses will create attractive opportunities for the employees and customers of both groups," he noted.

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