Koch to Buy Molex for $7.2 Billion; Conglomerate Known for Unglamorous Industries Becomes a Supplier to Apple
Koch Industries Inc., known for concentrating on such unglamorous industries as oil refining, chemicals and fertilizer, has a new role: supplying electronic parts to Apple Inc.</br></br>The Wichita, Kan.-based conglomerate, owned by billionaire brothers Charles and David Koch, on Monday announced an agreement to pay $7.2 billion, or $38.50 a share, for Molex Inc. On the Nasdaq Stock Market, shares in Molex surged 32% to $38.63 at 4 p.m. Monday.</br></br>Molex, based in Lisle, Ill., makes connectors, antennas and switches for cars, computers, cellphones and factory equipment, among other things. Sales to Apple accounted for about 14% of its $3.62 billion in revenue for the fiscal year ended June 30.</br></br>Though demand from smartphone and tablet-computer makers has soared in recent years, the market is subject to sudden downdrafts as fads change, and suppliers such as Molex are under constant pressure to cut prices. Molex has set a goal of raising pretax margins to 14% but managed just 9.4% in the latest quarter.</br></br>Koch's offering price is "a pretty heady premium for a company that's generating a margin that is lower than its peers," said Shawn Harrison, an analyst at Longbow Research in Cleveland. "The only way the transaction works is if the margins expand substantially." Mr. Harrison expects Molex's margin on earnings before interest and taxes to be 11.6% for 2014, compared with 15.4% and 20.1% respectively for larger rivals TE Connectivity Ltd. and Amphenol Corp.