Molex Inc., the Lisle-based manufacturer that this month struck a $7.19 billion deal to sell itself to the Koch brothers, was shopped around to 17 potential buyers but only one had a serious interest in the company, according to a regulatory filing.
On Monday, the electronic connectors business laid out the background of the deal in a document filed with the Securities and Exchange Commission.
In early 2013, the co-chairmen of Molex Inc. agreed that “in light of market conditions” it was time to sell the company. Brothers John and Frederick Krehbiel, ages 76 and 72, respectively, also realized the need for succession planning at the company at which they’re controlling shareholders.
In April 2013, they met separately with representatives of William Blair & Co. and BDT & Co., two Chicago investment banking firms, to discuss whether a potential sale of Molex would be worthwhile.
On May 8, the co-chairmen met separately again with the two firms, which presented their findings. The executives then asked the firms to discuss the matters with each other and prepare a joint meeting regarding a potential sale.
On May 15, the firms met with the co-chairmen, and, in late May, the Krehbiels reported on those discussion to the board members and said a special board meeting should be held to decide whether to pursue a sale.
That special board meeting was held on June 3. The board also got advice from Dentons, a law firm. Don Lubin, a Dentons partner, is a Molex director. William Blair and BDT said they thought that Molex could get a “substantial premium” to current market prices.
Also discussed was whether Molex might be sold to financial buyers — such as private equity firms – or strategic buyers, including direct competitors. William Blair and BDT said a group of financial buyers would likely have to band together to buy Molex, a process that would require input of multiple lenders and others and create concerns about confidentiality.
The board, William Blair and BDT also discussed the risks of shopping the company to its main rivals. That also posed risks – mainly competitors getting their hands on sensitive information, which raised regulatory as well as confidentiality concerns.
It was decided that the process would go faster if competitors were pitched, due partly to their familiarity with the industry. The board also decided that. in the event a deal was reached, it would hire a third adviser to issue a decision on whether the deal was fair to common shareholders. One reason it wanted a third set of eyes was because William Blair Chairman Edgar Jannotta, 82, was a Molex director.
Molex officially hired William Blair and BDT in early June. Between June 17 and July 19, they contacted 17 potential strategic bidders. Of those 15 weren’t interested. One signed a confidentiality agreement on June 28; it didn’t contain a provision that restricts the potential buyer’s ability to buy stock in the company that it’s considering buying. On July 3, it said it wasn’t interested in Molex, partly due to the fact that it was more interested in systems, rather than parts, businesses. It also cited Molex’s profit margins.
On July 15, BDT discussed a potential investment in Molex with conglomerate Koch Industries Inc. That day, Molex gave Koch a confidentiality agreement with a “customary standstill provision,” but Koch said it would accept only a limited standstill at that time. Koch signed the confidentiality agreement.
On July 23, Molex met with representatives of Koch and BDT at Koch’s offices in Wichita, Kan. Two days later, Koch agreed to a customary standstill provision. Shortly thereafter, Molex gave additional confidential information to Koch, including a financial forecast through 2018. Koch also visited certain Molex plants.
On Aug. 5, representatives of Koch and Molex met in Chicago. An all-day meeting was held the following day in Naperville with Koch, Molex, William Blair and BDT. A couple of days later, Koch cited a possible value of $37.50 to $39 a share. It quickly revised that high end down to $38.50. BDT suggested that they raise the lower end to $38. Koch agreed, and the new range was $38 to $38.50.
On Aug. 9, Molex had a regularly scheduled board meeting that included updates from William Blair and BDT. During that meeting, “BDT confirmed to Molex’s board that BDT has various business relationships with” Koch, and that Koch is an investor in BDT funds and has co-invested in some of BDT’s portfolio companies. BDT said that, because of those relationships, it understood Koch and its interests and strengths. Molex also determined that an additional financial adviser would be hired.
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On Aug. 15, a Molex director and the company’s general counsel contacted Goldman Sachs & Co. to become a financial adviser, partly because of “Molex’s understanding that Goldman Sachs didn’t have any conflicts of interest that would prevent Goldman from acting as financial adviser to Molex.”
On Aug. 17, Molex sent a draft merger agreement to Koch and its lawyer, Latham & Watkins LLP.
On Aug. 19 and 20, Koch attended presentations in Naperville by Molex, William Blair and BDT.
Also, on Aug. 20, Molex had a special board meeting that included updates from William Blair and BDT. “The representatives of Goldman Sachs also reviewed certain relationships between the investment banking division of Goldman Sachs and” Koch. Goldman was officially hired on Aug. 23.
On Aug. 28, Koch visted Molex’s Lisle headquarters, where representatives met with the co-chairmen and Molex Chief Executive Martin Slark, as well as a BDT representative.
On Sept. 1 and 2, representatives of Koch, Latham & Watkins, Molex, Dentons, William Blair and BDT had a phone conference to discuss the merger agreement.
From Sept. 3 through Sept. 5, the six parties met at Latham & Watkins Chicago office. During that time, Molex senior management and engineers met with Koch management at Lisle headquarters for additional due diligence and a tour of Molex’s technology center.
On Sept. 5, Koch told BDT by phone that it was prepared to pay $38.25 a share. BDT said that Molex wouldn’t go below $38.50 a share and asked “Koch to reconsider.”
“Later that day,” Koch told BDT by phone that it would agree to pay $38.50 a share.
On Sept. 6, Molex held a special meeting to consider the sale, with William Blair, BDT, Goldman Sachs and Dentons in attendance.
On Sept. 9, the deal was announced. The $38.50 was a 42 percent premium to the prior closing price.
Board members Jannotta, the William Blair chairman, and Lubin, a Dentons partner, didn’t participate in the deliberations or vote on hiring William Blair or Dentons. Nor did they vote on the merger, the SEC document said.
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