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ABB to buy Thomas & Betts for $3.9 billion in U.S. push

By Caroline Copley and Victoria Howley

(Reuters) - Swiss engineering group ABB has agreed to buy U.S. electrical components maker Thomas & Betts for $3.9 billion to ramp up its presence in the world's largest market for low-voltage products.

Under the terms of Monday's deal, ABB will pay $72 per share in cash -- a 24 percent premium over the stock's closing price on Friday -- for the company, which supplies the construction, communications and power industries with connectors for cables, steel masts and heating and ventilation products.

ABB's Chief Executive Joe Hogan said the acquisition would open up a potential U.S. market for low-voltage products of about $24 billion for ABB's most profitable product range.

The deal would bring ABB's expenditure on companies in the United States to about $9 billion since Hogan took the helm in 2008, as he seeks to plug gaps in the group's portfolio.

The deal may spur more acquisitions as global multi-industry companies, such as Eaton Corp , look to expand in an increasingly attractive electrical equipment sector, said analyst Mike Wood of Macquarie Securities, who added that ABB looked at other targets before its Thomas & Betts deal.

"There's an increased need for electronics and retrofits to improve energy efficiency across the sector, and these companies are seeing growth rates better than the end markets in which they're competing, so this sector in general is an attractive breeding ground for a takeout," Wood said.

Thomas & Betts, which reported strong sales and profit growth on Monday, sells many of its products to U.S. utilities, and ABB is hoping to grab business as these companies boost spending over the next few years to bring older plants in line with new environmental regulations.

"Eighty percent of the revenue of our low-voltage business is contained between China and Europe, and the U.S. has the world's largest, so our primary intent here is to make sure we penetrate that market," ABB's CEO Hogan told a conference call.

ABB's move may speed consolidation of the industry, with Hubbell Inc , Acuity Brands Inc and Cooper Industries the most likely targets, said analyst Jeff Sprague of Vertical Research Partners.

"We wouldn't rule out ABB making another move in the space 12-18 months after digesting TNB," Sprague said in a research note.

Hubbell shares gained 2.3 percent in morning trading, while Cooper gained 0.7 percent in an otherwise down market.

Possible acquirers are Germany's Siemens , its Osram lighting unit that's set to be spun off, France's Schneider Electric and Eaton.

On Monday, Siemens agreed to buy RuggedCom Inc , a Canadian maker of data communications networks systems, for about C$382 million ($381 million) in cash, to improve access to markets in North America and Asia-Pacific.

DEAL MULTIPLE

ABB's low voltage division, which makes products like circuit breakers and enclosed switches, is the group's most profitable, with an operating margin of 19.9 percent in the third quarter of 2011.

"The acquisition strategically makes sense as strengthening the North American business comes at rather demanding multiples but also offers significant synergy potential," said Vontobel analyst Panagiotis Spiliopoulos.

The deal values Thomas & Betts at a multiple of 9.9 times 2011 core earnings, which compares with an average of 11.4 paid in similar takeovers since 2000, according to ABB.

"On average the premium is in the range of what you pay for these industrial deals," said ZKB analyst Richard Frei. "Looking at multiples, EBITDA close to 10 is not really cheap, but for a healthy company like this, you have to pay."

ABB expects some $200 million in annual cost savings from the deal by 2016.

Shares in ABB, which makes equipment for oil, gas and utility companies, were down 2.16 percent at 19.01 Swiss francs, underperforming a 1.3 percent European Industrial Goods and Services sector <.SXNP>.

NORTH AMERICA

Under the leadership of American Hogan, ABB has used its war chest to boost its presence in North America, buying industrial motor firm Baldor Electric for $4.2 billion in 2010 and spending more than $1 billion on U.S. software firm Ventyx.

Through the deal, ABB will gain access to a network of more than 6,000 distributor locations and wholesalers in North America. The U.S. market had grown between 2.5 and 4 percent in recent years, Hogan said.

"We have a pretty small presence in U.S. low voltage, with about $240 million (per year) so far, so obviously this is completely changing the game for us," Chief Financial Officer Michel Demare told a conference call.

ABB, which had some $1 billion in cash at the end of the third quarter, has said acquisitions could potentially add another 3 to 4 percent to its overall growth rate. The group has allocated between $9 billion and $18 billion for acquisitions over a five-year period from 2011.

"We have ammunition for further deals. Nothing is really imminent in that sense, but we are making sure we continue to look at what opportunities we continue to build," Hogan told the conference call.

Memphis-based Thomas & Betts also makes products ranging from connectors for cables to heating and ventilation products and steel masts.

The company, which employs some 9,400 people, reported a 14.6 percent rise in 2011 sales to $2.3 billion, while profit increased to $190.2 million from $145.6 million.

Thomas & Betts shares jumped 23 percent to $71.30 on Monday on the New York Stock Exchange.

Bank of America Merrill Lynch has underwritten a $4 billion bridge loan for the acquisition and acted as ABB's financial adviser. Deutsche Bank Securities Inc. acted for Thomas & Betts.

(Additional reporting by Nick Zieminski in New York, Sakthi Prasad in Bangalore; Editing by Jon Loades-Carter, Saumyadeb Chakrabarty)

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