Dover Corporation (DOV) has decided to spin-off certain part of its communication technologies businesses into a standalone, publicly traded company in order to concentrate on its core industrial business, focused around energy, fluids and refrigeration.
The communication technologies segment is engaged in the design and manufacture of innovative products and components which serve the following key market - Consumer Electronics, Medical Technology, Aerospace & Defense, and Telecom and Others. The businesses to be spun off will be included in the company's Knowles communication tech unit. The company however will retain businesses in the communications technologies segment that make components for aerospace and defense industries and fluid applications.
Dover acquired Ill. Based Knowles, leading manufacturer of technologically advanced micro-acoustic component products in 2005 for $750 million. Knowles is also the leading manufacturer of MEMS ("micro electro mechanical systems") microphones, for the high end cell phone market. Prominent brands within the new company will include Knowles, Sound Solutions, Dielectric, Novacap, Syfer and Vectron.
Dover’s largest acquisition in its history was Sound Solutions, manufacturer of dynamic speakers and receivers for cell phones and other consumer electronics. Sound Solutions was acquired in July of 2011 for $790 million and enhanced Dover product offerings serving the high growth handset market. It enabled the Communication Technologies segment to be a global leader in audio components.
The transaction will be in the form of a distribution of 100% of the stock of the new, independent, publicly traded company Knowles. It will be tax-free for Dover and for U.S. shareholders. The transaction is slated to be completed by 2014. Dover will incur onetime costs in the range of $60 to $70 million.
Knowles, on a pro-forma basis for 2013, will have $1.3 billion in annual revenue, with about two-thirds derived from high-growth acoustic products. Following the spin-off, Dover's revenue in 2013 on a pro-forma basis is estimated at around $7.4 to $7.6 billion. Dover had generated income of $8.1 billion in 2012.
However, the completion of the transaction is pursuant to certain customary conditions including appropriate filings with the U.S. Securities and Exchange Commission as well as final approval by Dover's Board of Directors.
The communication technologies business was not exactly aligned with the industrial profile of Dover. This will help the company to focus on its key growth spaces energy, refrigeration, fluids and printing and identification. However, Dover will lose its position of a leading supplier of microphones for smartphones, which is expected to remain strong supported by numerous new product releases as well as increased use of multiple microphones per handset.
Dover currently retains a short-term Zacks Rank #3 (Hold). Graco Inc. (GGG) with Zacks Rank #1 (Strong Buy), Altra Holdings, Inc. (AIMC) and Broadwind Energy, Inc. (BWEN) with Zacks Rank #2 (Buy) are more favorable options for investors keen on this industry.
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