File photo of a California power substation.JOHN TODD
RuggedCom Inc. , an up-and-coming Canadian maker of communications equipment for harsh environments, has drawn a hostile takeover bid from a much larger U.S. competitor, and analysts say a bidding war could be in the works.
St. Louis-based Belden Inc , a big global cable maker that has expanded into networking equipment, said Monday it will make a cash offer of $22 for each RuggedCom share, a deal that would be worth $280-million. The idea is to beef up Belden's networking business in the electric power transmission and transportation sectors.
RuggedCom makes switches and network routers that are designed for messy places, such as power substations, oil refineries and roadside traffic control boxes. With clients around the world, its revenues have climbed steadily to about $100-million a year. The company has also carved out a niche in the "smart grid" business – the real-time control and monitoring of electrical transmission networks.
RuggedCom stock shot above Belden's bid price on Monday, closing the day up $9.08, or almost 67 per cent, to $22.69. But RuggedCom was cool to the proposal, saying that it is "highly opportunistic" and clearly undervalues the company. It has set up a special committee of the board to look at the Belden offer and make a recommendation to shareholders.
For its part, Belden said its proposal is "compelling" because it offers immediate liquidity and a big premium to RuggedCom's recent price. Chief executive officer John Stroup said Belden wants to boost its global networking business – which has expanded through acquisitions in the past few years.
The offer, which has not yet been formally filed, requires two-thirds support of RuggedCom's shareholders.
Analysts say they wouldn't be surprised to see another bid, or Belden forced to beef up its offer.
Maher Yaghi of Desjardins Securities said that if Belden got RuggedCom for its offered priced it would "not be overpaying for the assets," especially given the significant cost savings it could squeeze out of the target company.
Belden and RuggedCom are No. 1 or No. 2 in a number of key markets, and "there are definitely a lot of synergies in terms of marketing and sales and research and development," Mr. Yaghi said, so Belden could afford to pay more if it had to. Other players in this space such as Cisco Systems or General Electric could also get those synergies if they decided to bid, he added.
Kris Thompson, an analyst at National Bank Financial, said a higher bid, from Belden or another party, could reach as much as $28 a share. He thinks the management and board of RuggedCom, who collectively hold around 20 per cent of the company's shares, could round up the one-third of total votes needed to force a higher bid from Belden, even if a white knight does not appear on the horizon. Founder and CEO Marzio Pozzuoli alone owns about 9 per cent of the shares.
With its strong revenue growth, "RuggedCom deserves a premium given its market leadership," Mr. Thompson said in a report.