July 31 (Bloomberg) -- TDK Corp., the world's largest maker of magnetic heads used in disk drives, agreed to buy Germany's Epcos AG to expand production of machinery parts and add customers in Europe.
TDK plans to pay 17.85 euros ($27.89) in cash for each Epcos share, or 29 percent higher than the closing price yesterday, the companies said in a statement. The offer, which values Epcos at about 1.2 billion euros, will probably be completed by October, the statement said.
Epcos's automotive and industrial components may help TDK boost sales in Europe, where revenue is less than half of Japan. TDK has announced at least five acquisitions since the start of 2007 to help cut its reliance on magnetic heads, which account for 38 percent of revenue.
``Equity holders would definitely want the company to pursue this kind of growth strategy,'' said Fumihito Gotoh at UBS AG, Japan's top-rated credit analyst in a Nikkei Veritas survey. ``Domestic growth opportunities are limited.''
Epcos surged as much as 29 percent to 17.88 euros in German trading, or about 16 times estimated earnings per share for next fiscal year. TDK fell 1.5 percent to close at 6,500 yen on the Tokyo Stock Exchange before the announcement.
``TDK's offer contains a fair premium,'' said Frank Schneider, an analyst at alpha Wertpapierhandel in Frankfurt, in a telephone interview. ``I don't think there will be a counterbid.''
Regulatory Approval
The purchase, subject to approval by the German Federal Financial Supervisory Authority, will be financed with a bridge- loan, the statement said. TDK plans to plans to separate its relevant business that makes so-called ``passive'' components and combine it with Epcos's operations to form TDK EP Components KK, the statement said.
``Epcos brings to the deal its strong position in the growing automobile and industrial machinery markets in Europe,'' TDK's President Takehiro Kamigama said in a statement to the Tokyo Stock Exchange today. ``There are also benefits in sales and research and development.''
Epcos, which emerged from Siemens Matsushita Components, a venture founded in 1989 by Siemens AG and Matsushita Electric Industrial Co., today reported profit after tax in its latest quarter rose 29 percent to 19.3 million euros.
The Nikkei English News reported today that TDK planned to acquire Epcos for 150 billion yen ($1.4 billion) to 200 billion yen as part of the Japanese company's plans to expand through acquisitions.
Smallest Market
Europe accounted for 6.4 percent of TDK's revenue in the quarter ended June 30, compared with 17 percent in Japan and 12 percent in the U.S., the company said today.
Moody's Investors Service and Standard & Poor's said they may cut TDK's debt rating following the acquisition announcement.
TDK joins Tokio Marine Holdings Inc., Nippon Life Insurance Co. and Dai-ichi Mutual Life Insurance Co. among Japanese companies announcing overseas acquisitions this month as they take advantage of the weaker dollar.
``The premiums may appear high on recent acquisitions by Japanese companies but that's only because stock prices have become so depressed,'' Yutaka Shiraki, a strategist at Mitsubishi UFJ Securities Co. in Tokyo. ``This is a real buyers market for companies with cash.''
To contact the reporter on this story: Hiroshi Suzuki in Tokyo at hsuzuki5@bloomberg.net.
