In a not unexpected move, the directors of an Ontario-based maker of networking equipment for harsh environments has rejected a $280 million unsolicited offer from a competitor.
In a statement Wednesday morning, the board of RuggedCom Inc. of Concord said the offer from Belden Inc.“fails to adequately compensate shareholders for RuggedCom’s strong prospects for continued growth, profitability and shareholder value creation.”
The RuggedCom board said it is backing a decision by a special committee formed to look into last month’s offer. Meanwhile, chairman Peter Crombie said in the statement, RuggedCom is now “aggressively exploring and evaluating alternatives to the Belden Offer. We are encouraged by the response we have received from interested parties thus far and will provide a further update in due course.”
The board is hoping Belden will either raise its $22 a share bid, or other companies will step forward with a higher offer. Before trading opened today the market had pushed shares up to $24.75. But Belden isn’t biting. In a statement issued quickly after RuggedCom’s announcement, the U.S. company said it is standing by its $22 a share offer. “The recommendation contains no information of substance that was not already taken into account in formulating our original valuation and offer price,” Belden CEO John Stroup said in a statement. “As such, we continue to be confident that RuggedCom shareholders will recognize that our offer is in their best interests and delivers strong and fair value based on the current market outlook.”
The Belden offer expires Jan. 25.
In briefly detailing its objections, the RuggedCom board said its financial advisor – TD Securities – concluded the Belden offer isn’t high enough. The board also believes the timing of the offer is “highly opportunistic and disadvantageous to RuggedCom shareholders.”
“Market sentiment” – a reference to the current share price – “supports the financial inadequacy of the Belden offer,” the board statement added. As a result, the RuggedCom board is urging shareholders who have already tendered shares to Belden to pull them back.
But in his statement Stroup said that “while differences of opinion on such matters are to be expected, credible industry watchers and analysts have stated that Belden’s offer is generally in-line with, if not in excess of, their long-term valuations and price targets for RuggedCom stock. Furthermore, combining the businesses would deliver significant synergies that will help to better serve the customers of both companies and provide new growth opportunities to RuggedCom and Belden employees.”
Based in St. Louis, Belden is substantially larger than RuggedCom and has the resources to make a fight if it wants. It makes networking, cable and connectivity products for enterprises, industrial automation, education, healthcare, transportation and other industries. In 2010, Belden [NYSE: BDC] had net income of US$108 million on revenue of US$1.6 billion. By contrast for its fiscal year that ended March 31, RuggedCom [TSX: RCM] had net income of $6.18 million on revenue of $93 million.
(An earlier version of this story incorrectly gave quarterly figures as annual numbers).
Meanwhile, the RuggedCom board is exploring whether it will introduce a shareholder rights plan.
To support its claims that the bid is undervalued, RuggedCom says it has either been contacted by or initiated contacts with other companies, some of whom are looking at its books. But it also admits that there’s no assurance a financially superior offer will emerge.