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Molex to be Bought by Koch Industries

Zacks Equity Research

Molex Incorporated (MOLX) is to be acquired by a private company, Koch Industries, Inc. for an approximate value of $7.2 billion.

Koch Industries will pay $38.50 per share for Molex, which represents a 42% premium to the closing share price of its publicly-traded stock on Sep 6. After the announcement yesterday, Molex shares jumped 31.66% to its highest level since 2006. The deal will be completed by the end of the year, subject to customary closing conditions, including receipt of shareholder and regulatory approvals.

Kansas-based Koch Industries is a private multinational corporation owned by Charles and David Koch. It is one of the largest private companies in the United States with operations spread in nearly 60 countries and annual sales of about $115 billion. It owns companies in varied sectors such as biofuels, chemicals, refining, fertilizers and commodity-trading services. Since 2003, the company has invested $50 billion in acquisitions and other capital expenditures. The brands owned by the company include Brawny paper towels, Dixie Cups and Lycra.

The transaction has already been funded by certain shareholders and executives owning about 32% of the common stock and 94% of the Class B common stock. William Blair & Company and BDT & Company will be acting as lead financial advisors for the deal and Goldman, Sachs & Co. (GS) will provide a fairness opinion and other financial advice.

Post acquisition, Molex will operate as an independent subsidiary of Koch Industries. Management of Koch Industries stated that the acquisition will expand its already large portfolio and provide a significant new platform for growth.

Molex is a leading player in the fast-growing connector market, with several secular growth drivers. The company sells interconnection systems to automakers, military customers and mobile-phone companies, including Apple (AAPL), which uses some Molex connectors for its iPhone 5.

The acquisition can be seen as an attempt by the Koch Industries to expand into connector components and diversify its business from their traditional holdings in energy, chemicals and paper. However, we are unclear about the need to pay the huge amount for the acquisition.

Molex shares carry a Zacks Rank #3 (Hold).Stocks that are performing well at current levels include Supertex (SUPX), Syntel Inc. (SYNT) and Methode Electronics Inc. (MEI), all carrying a Zacks Rank #1 (Strong Buy).

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