Molex Inc. (MOLX) , probably best known for supplying essential parts of Apple Inc.’s (AAPL) iPhone, announced on Sept 9 that they were to be acquired by Koch Industries, the holding company controlled by billionaire firebrands the Koch brothers, for $7.2 billion, with the deal set to close sometime in the fall. The buyout won the full support of the Krehbiel family, which has controlled Molex since its 1938 founding, who were no doubt excited by the fact that the Koch brothers are paying a 31 percent premium on the company.
The buyout price comes in at 11.1 times cash flow, which suggests to investors there’s more of an upside to Molex than anyone thought. The Koch brothers are notoriously stingy with their offers, and for them to offer such a high price for the company raises a lot of questions about what exactly they see in the beleaguered electrical connector manufacturer.
Molex has underperformed significantly the last few years. Earnings have been falling the last three, and this year has seen growth stay basically flat, save a stock drop following a disappointing third fiscal quarter 2013 earnings report in April that missed expectations and offered lackluster guidance and subsequent rebound.
The company is up from a low around $10 a share in 2009, but still way down from its high in the $60 a share range in 2000. The Koch brothers are betting Molex can regain that former glory. If there is to be an upcoming rally for Molex, it could be fueled by the recent resurgence of one of Molex’ major buyers – Apple.
Sales to Apple account for 14 percent of Molex’ revenue, and with Apple set to release two new iPhones in September, Molex could poised for big gains in the fall.
Regardless of future performance, the current high price Molex fetched from the Koch brothers sent the company’s stock skyrocketing. It rose 31.36 percent on the day to hit $38.53 a share.
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