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N.Y. Firm to Buy Richey, Bulk of Bell Industries

Acquisitions: Garden Grove and El Segundo companies sell in move to consolidate sagging electronics-distribution industry.

October 02, 1998|JONATHAN GAW | TIMES STAFF WRITER

In a move to consolidate the sagging electronics-distribution industry, a New York company will pay more than $280 million to acquire Garden Grove-based Richey Electronics Inc. and a majority of Bell Industries Inc. of El Segundo, the companies announced Thursday.

The acquisitions by Arrow Electronics Inc. of Melville, N.Y., the world's largest distributor of electronic components, come amid a lengthy slump in the electronics-distribution industry, when stock prices for many of the players, including Richey and Bell, have slumped.

While Arrow did not say whether the acquisition will result in layoffs, analysts said that it is common in distribution industries for significant job losses to occur after mergers.

"There clearly will be a few redundancies, and those will be dealt with," said Richard Berger, chief financial officer at Richey, which has 1,050 employees, including 150 in Orange County and 300 in Sun Valley.

Arrow will pay $95.5 million in cash, or $10.50 per share, for Richey and $185 million for the electronics distribution group of Bell, which has close to 800 employees, 250 in Southern California.

On the news of the deal, Richey stock jumped $3 a share, or 44%, to $9.88, short of Arrow's tender of $10.50 per share. Arrow stock fell 2.4%, or 31 cents, to $12.81, while Bell stock slumped 17.3%, or $2.06, to $9.88. The company warned that the sale will result in a "significant loss" when the transaction is completed.

Arrow has been strong in distributing electronic components--such as capacitors, resistors and power supplies--to large corporations. The acquisition agreements, sealed Wednesday evening, should allow the company to move into the market of small and medium-sized customers, analysts said.

Manufacturers of electronics components have been slimming the number of distributors with which they have been willing to deal, keeping smaller distributors such as Bell and Richey from providing their customers a full range of products.

"The electronic component and distribution industry has been in recession for the last three years, and it has been a very difficult operating environment for all the companies in this niche," said Robert Damron of Cleary Gull. "In order to survive long-term in this industry, you really need the economies of scale to grow and leverage your infrastructure."

Arrow, which has grown largely by acquisitions, hopes that its strength in serving large corporate customers will translate into serving small and medium-sized businesses.

"We have been trying to grow that internally with special sales groups, and we were making some progress, but it was slow and not as successful as we would have liked," said Robert Klatell, executive vice president of Arrow.

The plan to integrate the three companies will take 45 to 90 days, Klatell said. Federal regulators and stockholders of Bell and Richey need to approve the deal, which will give Arrow about 10% of the $6-billion market for distributing electronic components other than semiconductors.

Richey had earned $6.9 million in 1997 on sales of $250 million. Bell's electronic-components distribution arm had sales of about $500 million.

Richey has a history of growing through acquisitions, purchasing in part or whole at least six companies since 1994, according to filings with regulators. Sales have risen from $30 million in 1991 to $250 million last year.

But electronics-components suppliers in Asia flooded the market, creating a glut. At the same time, the industry was experiencing a cyclical slump.

"Times changed," said Berger, Richey's chief financial officer. "With the changing business environment and the recession in Asia, we just reevaluated."

William Cacciatore, president and chief executive of Richey, has not said what his role in the acquired company will be, Berger said, but "we're just presuming that he will not choose to stay on."

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Richey Electronics

Headquarters: Garden Grove

Business: Electronic-components distributor

Chairman/Pres./CEO: William C. Cacciatore

1997 sales: $250 million

1997 net income: $6.95 million

Status: Public

Exchange: Nasdaq

Thursday's stock close: $9.88

Employees: 1,050 (150 in Orange County)

Web site: http://richeyelec.com

Source: Bloomberg News, Richey Electronics

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