Key Tronic seeks counsel about unsolicited suitor
New York tech company continues takeover attemptNovember 9th, 2017
Brett Larsen, chief financial officer at Spokane Valley-based Key Tronic Corp., says the electronics manufacturing service provider is consulting with its attorneys about the behavior of an East Coast electronics manufacturer that’s attempting to execute a hostile takeover.
“The best I can say right now is that we’re in touch with counsel in regard to this,” Larsen says. “We’re concerned about their accuracy of their statements, motives, as well as the legitimacy of their purported plans.”
On Oct. 23, Cemtrex Inc. of Farmingdale, N.Y., issued a press release saying it was presenting an exchange offer of $11 per share for Key Tronic’s outstanding shares of common stock.
As of the close of market on Nov. 6, Key Tronic stock sold for $7.50 a share while Cemtrex’s share value was $2.80.
Cemtrex representatives couldn’t be reached for comment.
In its October press release, the company said, “Cemtrex believes its business model and financial resources would construct an optimal platform for the combined company to create long-term value for all stockholders.”
Cemtrex’s website says it’s involved in designing, prototyping, and manufacturing electronic components in advanced technologies.
Key Tronic specializes in printed circuit board assembly, plastic molding, precision metal stamping, fabrication and finishing, and full product assembly, with products ranging from consumer devices to high-end commercial and industrial electromechanical products.
Cemtrex says it may not be able to acquire all outstanding Key Tronic shares through an initial offering. The effort might take “one or more transactions” following the first offering, the release says.
Key Tronic learned at the beginning of September through a U.S. Securities and Exchange Commission filing that it was the target of the takeover bid.
Larsen says Key Tronic was never made aware of Cemtrex’s interest in Key Tronic prior to the SEC filing. Larsen says Key Tronic will continue its business operations as usual.
Cemtrex contacted Key Tronic’s shareholders in a letter on Sept. 5, offering shares of Cemtrex stock to Key Tronic shareholders in exchange for their stocks in the Spokane Valley company.
In a hostile takeover attempt, the company that seeks to acquire another bypasses the target company’s executive team and communicates directly with the target’s shareholders.
Key Tronic has about 1,000 total shareholders. Larsen says he’s aware of Cemtrex having contacted two of Key Tronic’s largest shareholders, but he says he was unaware of the nature of the interaction. The two shareholders contacted own less than 10 percent of Key Tronic shares, Larsen says.
In the September letter Cemtrex sent to Key Tronic shareholders, Cemtrex acknowledged that it had posted lower annual revenues than Key Tronic in the 2016 fiscal year.
“Cemtrex realized net income of $5 million, while Key Tronic recognized net income of just $5.6 million,” the letter said.
Key Tronic posted $468 million in revenue in 2016, compared with Cemtrex’s $94 million. Cemtrex’s compounded annual growth since 2012 is 50 percent, compared with 5 percent for Key Tronic, the letter said.
“Cemtrex has demonstrated a track record of growth over the last five years while Key Tronic has significantly underperformed,” Cemtrex asserted.
Key Tronic has been a manufacturer of electronics for more than 45 years. On its website, the company boasts “an unbroken string of profitable quarters since 2004.”
Key Tronic is headquartered here at 4424 N. Sullivan and has manufacturing facilities in Fayetteville, Ark.; Oakdale, Minn.; and Corinth, Miss., in the U.S., and internationally in Juarez, Mexico, and Shanghai, China.