Why TT Electronics rejected Volex’s lucrative takeover proposal

In a bold move, Volex plc, a global leader in power and data connectivity solutions, has submitted two acquisition proposals to TT Electronics plc, aiming to acquire the entire issued share capital of the company. Despite offering a substantial premium, TT Electronics’ board has firmly rejected the offers, citing undervaluation and strategic concerns.

Volex’s initial proposal included 62.9 pence in cash and 0.203 new Volex shares per TT Electronics share, valuing the deal at approximately 129.0 pence per share. A subsequent proposal increased the share component to 0.223, raising the implied value to 135.5 pence per share. By November 14, 2024, this second proposal valued TT Electronics at £248.6 million, representing a 76.7% premium over its closing price of 79.0 pence. The market responded swiftly, with TT Electronics’ share price surging by over 30%.

Despite these attractive terms, TT Electronics’ board has dismissed the offers, citing concerns about undervaluation and questioning the strategic fit of the merger. Sources familiar with the matter indicate that TT Electronics may have received a higher offer from an unnamed third party, influencing its decision to reject Volex’s advances.

A clash of strategic visions

Volex’s Executive Chairman, Lord Nat Rothschild, underscored the strategic rationale behind the proposed merger, envisioning the creation of a scaled leader in specialist electronics. He argued that combining TT Electronics’ capabilities with Volex’s operational strengths would unlock significant value for shareholders, particularly in high-growth sectors like medical technology, aerospace, and defence.

Rothschild also criticised TT Electronics’ recent performance, highlighting operational challenges, inconsistent results, and missed profitability targets. He pointed to TT Electronics’ acquisition strategy, which he claimed had led to disappointing outcomes, including asset disposals and significant write-downs. In contrast, Volex has delivered consistent growth and profitability, achieving higher operating margins and successfully integrating multiple acquisitions.

According to industry analysts, the proposed merger aligns with broader trends in the electronics manufacturing sector, where consolidation is seen as a pathway to scale and diversification. The combined entity would benefit from exposure to megatrends such as the decarbonisation of transportation and the convergence of aerospace technologies.

TT Electronics faces operational challenges

TT Electronics has faced persistent challenges in recent years, including restructuring costs, underperforming acquisitions, and declining margins. Its adjusted operating profit margins have fallen significantly below its mid-term target of 12%, while recent earnings downgrades have further dented investor confidence. The company’s share price has plummeted by 65% since 2018, contrasting sharply with Volex’s 300% growth over the same period.

Rothschild argued that TT Electronics shareholders would benefit from Volex’s proven track record in delivering value-accretive acquisitions and margin expansion. He emphasized that the merger would offer immediate cash returns alongside the potential for long-term growth within a larger, more diversified group.

Market and shareholder sentiment

The rejection of Volex’s proposals has ignited debate among investors, with some urging TT Electronics’ board to reconsider. The substantial premium offered by Volex highlights the value perceived in TT Electronics’ assets, despite its recent struggles. Industry observers note that TT Electronics’ hesitation may stem from its confidence in executing a turnaround plan or the possibility of securing a better deal elsewhere.

As the December 13 deadline approaches, it remains uncertain whether Volex will revise its offer or step back entirely. The outcome of this standoff will shape the future trajectory of both companies, potentially setting a precedent for similar deals in the sector.