PULS is amenable to a takeover, but at a higher price...Briefing.com
10-Mar-11 08:48 ET GROWX Emerging Growth Stocks: Pulse Electronics (PULS) rejects takeover bid, but sounds amenable to a higher offer (6.10 ) Pulse Electronics (PULS), a former member of our Stocks Under $10 rankings, just announced that it has rejected the $6 per share offer from Bel Fuse (BELFB) which was publicly announced on February 28. We think PULS is an interesting name and there is some history here so we wanted to provide some context. Pulse has been undergoing a transformation the past few months. In November 2010, the company changed its name from Technitrol (TNL) following the sale of its AMI Doduco division. The goal was for Pulse Electronics to become a pure-play electronic components provider, which it now is.
The offer from Bel Fuse was not a surprise because in late December 2010, PULS announced that Bel Fuse, a competitor that Pulse unsuccessfully tried to acquire in 2007, had recently contacted Pulse about "restarting discussions about a potential business combination" and identifying a "friendly transaction" as the "preferred path forward." Pulse said at the time it told Bel Fuse that it was interested in meeting for further discussions. Also in late December, Bel Fuse said it intended to nominate three candidates for election to Pulse's board at the 2011 Annual Meeting of Shareholders. Then on January 20, PULS announced that it received another letter from Bel Fuse indicating its intent to nominate a fourth candidate for the board. Our take on that news at the time was that Bel Fuse seems to be quite serious about some sort of combination between the companies.
Today's rejection is not all that surprising because the $6 offer price was not that much higher than where the stock was trading ($5.41 for an 11% premium) when the deal was announced. In Bel Fuse's defense, they are probably thinking that the correct premium calculation should be based on where the stock was trading in late December ($4.40, 36% premium) when it was first disclosed that the two companies were talking. The $5.41 clearly included some takeover speculation.
It seems to us that Bel Fuse is pretty eager to acquire PULS. They have been talking for nearly three months, they wanted three board members then they wanted four members. Based on comments made in the press release, it sounds like PULS is amenable to a takeover, but at a higher price. PULS concedes that current industry conditions are challenging and 2011 may not be as strong as 2010. However, PULS does not believe this view is reflective of the industry's long-term health and calls the offer "opportunistic" as it does not reflect the actions Pulse has taken to improve its performance.
In sum, our sense is that the premium did seem a bit modest. Perhaps it was just an initial offer from Bel Fuse just to see what happened. PULS seems open to doing a deal, but just at a higher price. The market seems to think a higher offer is possible as PULS is trading above the $6 offer price. Overall, we think PULS is a name to keep on the radar as a potential buyout candidate and, based on Bel Fuse's eagerness, it indicates to us that PULS' product offering must be pretty attractive for Bel Fuse to be so aggressive. Spinning of AMI Doduco seems to have been the right decision as the company seems to be more attractive now.