The board of Canadian communications equipment maker RuggedCom Inc. says shareholders should reject a hostile takeover bid from U.S. giant Belden Inc. , suggesting a better offer may emerge from a string of suitors now poring over the company’s books.
In a director’s circular filed with securities regulators Wednesday, the RuggedCom board said the $22-per share offer is inadequate because it doesn’t take into account the company’s strong growth prospects. The board also said the company has been in touch with “numerous” other firms who may be interested in making a bid, and some of them are going over RuggedCom’s financial information in a data room set up for the purpose.
St. Louis-based Belden, a global cable maker that has moved into networking equipment, made its $280-million offer in mid-December. The company wants to expand its 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. Its revenues have climbed steadily to about $100-million a year, as it carves out a new niche in the “smart grid” business – the real-time control and monitoring of electrical transmission networks.
In its circular, the RuggedCom board noted that its members and the company officers collectively hold about 16 per cent of the company shares, and they vote against the Belden offer.
It also notes that the shares have been trading well above the Belden offer since the bid was first announced, “a strong indicator that the market believes the Belden offer undervalues RuggedCom.”
RuggedCom stock closed at just under $25 per share on the TSX Wednesday.
Ian Giffen, the RuggedCom director who chairs the special committee looking at the Belden offer, said in an interview that the company will consider any offer, but Belden’s “is inadequate and opportunistic, and doesn’t recognize the value of the company’s prospects.”
Analyst Tom Astle of Byron Capital Markets Ltd. in Toronto said that his evaluation of RuggedCom, based on the company’s 30-per-cent growth rate, shows a “full-value bid” could be much higher than the price Belden is offering.
While there are no direct competitors that would help determine RuggedCom’s value, companies in other sectors with similar growth rates trade at more than a forward price/earnings multiple of 20, Mr. Astle said. Taking that into account, along with the synergies generated by merging with a larger company, and RuggedCom’s value could be above $35 per share, he said.
RuggedCom is the dominant player in electrical utility networking and is also an important participant in grid modernization, Mr. Astle said, so “this is a rare property and should be valued accordingly.”
In a response to RuggedCom’s circular, Belden said it will stick with its current bid, which it feels is fair. It also said it will apply to securities regulators to stop the shareholder rights plan that RuggedCom put in place just before Christmas. The “poison pill” would allow the RuggedCom board to double the number of shares outstanding if someone acquires more than 20 per cent of the company’s stock.