Altech accepts Arrow proposal
MORE than a year after spurning the advances of Avnet, Altech has announced a joint venture with global giant Arrow Electronics to form the largest electronic-component distributor in Africa.
Listed on the New York Stock Exchange with market capitalisation of $8-billion, Arrow did $6.5-billion worth of business last year and made operating income of $400-million. In contrast, Altech Distribution turned over R415-million out of an estimated SA market of R1.1-billion, giving it 40% market share. It is the second-largest earnings contributor to Altech after telecommunication.
Upon shareholder approval of the deal, Arrow will pay R84million upfront, followed by up to R32-million more based on profit of the joint venture in 1999 and 2000, for a 50% stake in Arrow Altech Distribution (AAD), the new name of the business.
Altech CE Craig Venter says the valuation was based on a multiple of Altech Distribution's earnings before interest and tax. "Arrow initially offered a multiple lower than what we eventually got," says Venter.
A property has been secured at Jet Park, close to Johannesburg airport, to facilitate clearing, handling and distribution of imported components on a 24-hour basis. Altech's four distribution companies Allied Electronic Components, Electronic Building Elements, Fairmont Electronics and Pace Electronics, will be consolidated into single premises. Arrow has entered many such ventures in dozens of countries and setting up the new site might not be as costly as anticipated because the software and computerisation is standard throughout Arrow.
Venter says AAD is the conclusion of an eight-year rationalisation process during which the number of distribution companies within Altech has been brought down from nine to four to one. He says it is premature to predict the effect on jobs, noting that skilled engineers are in short supply and could be redeployed in the group.
Venter's father, Bill, chairman of Altech's holding company Altron, says the Avnet approach was rejected because it wanted to take 80% of the equity of Altech Distribution. Avnet dealt with another group which has since been delisted.
"We were approached by Arrow more than a year ago, and had to check whether one and one could make three for us or whether it would be better for Altech to compete head-on if Arrow came to the continent by another route. We found that one plus one makes three with Arrow albeit that we have sold 50% of the distribution business." Bill Venter says the interest income on the proceeds of the sale would match the income to be relinquished through selling half the equity in the year to February 1998.
Arrow represents the world's leading components makers, including Intel, Texas Instruments, Microchip, SGS Thomson, Compaq, Hewlett Packard, US Robotics and Okidata.