Mergers & Acquisitions and Brightpoint and Takeovers and Manufacturing & Technology

Brightpoint's buy turns the tables

February 26, 2007

Walking out of Chanteclair restaurant near Indianapolis International Airport, Bob Laikin knew his dinner meeting with Dangaard Telecom executives had gone badly. They were offended, and with good reason.

After all, they'd flown all the way from Denmark, only to hear him flatly refuse their offer to buy Brightpoint Inc.

That was five years ago. On Feb. 20, the Plainfield-based cell phone distributor turned the tables, announcing a blockbuster deal to buy Dangaard, its largest European rival, for $308 million in stock. The deal swells Brightpoint's annual revenue from $2.6 billion to $4.5 billion and makes it the world's biggest distributor and logistics provider for the wireless phone industry.

"We see [the] acquisition ... as creating a global powerhouse with unprecedented scale in its market segment," Ittai Kidron, CIBC World Markets in New York, said in a report.

Laikin, Brightpoint's 43-year-old CEO, said it was a bumpy courtship, starting with that 2002 dinner meeting.

Back then, Brightpoint was on the ropes. Its stock had plummeted as performance waned. Meanwhile, it faced a looming deadline to buy back $140 million in bonds, with either cash or stock. Lacking the money, it faced the calamitous prospect of having to issue a glut of new shares to meet its obligations.

Returning to Indianapolis from a meeting in Chicago where bondholders were "raking him over the coals," Laikin agreed to dine with executives of the Padbord, Denmark-based company.

"The last thing I wanted to do was sit down with two guys from Europe who were doing well who wanted to tell me how poorly I was doing," Laikin said. "They told me about their expansion plans, then they proposed buying Brightpoint and said, 'Tell me about your plans.'"

"I was silent, because I thought there was no reason to give up the secrets of my strategy, considering the position I was in," he continued. "They thought I was rude, because they were so forthcoming. But the fact of the matter is, I didn't know where we were going to end up with the bondholders. So there was no sense telling a competitor what I was going to do."

Ultimately, Brightpoint wiggled out of its financial mess, buying back most of the bonds at a steep discount. The stock sprang back as the company regained financial health. Brightpoint shares now trade for about $12.15 apiece, giving the company a stock market value of $615 million.

Tough competitor

But much of Brightpoint's success has come despite Dangaard, which it has run up against many times through the years. Laikin remembers first encountering it in the mid-1990s when Brightpoint attempted to break into Europe with a series of small acquisitions in the United Kingdom, France and Poland. Laikin said Brightpoint "competed poorly," with Sweden the only cheerful exception.

There were different reasons for failure in each country. But Dangaard was the common denominator.

"Most markets would say, 'We have Dangaard and no space for anybody else,'" Laikin said. "We kept hearing Dangaard, Dangaard, Dangaard."

Because international expansion is the cornerstone of Brightpoint's business plan, Laikin kept his eye on his European rival. He said the equation changed in 2006 when Dangaard's largest shareholders sold their stake to Nordic Capital, a private equity firm with offices in Copenhagen, Stockholm and Helsinki. Private equity firms often are relatively short-term investors looking to cash out quickly with a big profit.

Laikin sent R. Bruce Thomlinson, Brightpoint's president of international operations, and Jac Currie, Brightpoint's president of emerging markets, to Denmark to meet with Dangaard CEO Steen F. Pedersen and Chief Operating Officer Michael Koehn Milland.

"This time," Laikin said, "We were forthcoming.

"I thought Brightpoint was ambitious. These guys are more ambitious than we were in the times we were going through hypergrowth. They wanted to go global," he said.

"We looked at the team and the fire in their eyes. We said, 'These guys are winners.' They're the clear leaders in Europe. If they go out into the rest of the world, every market we're in, we're going to keep bumping up against these guys," Laikin said. "If we're ever going to figure out a solution for Europe, we ought to figure out a way to merge these companies together."

Dangaard officials did not respond by press time to IBJ's requests for comment.

The two companies held a flurry of meetings in late 2006. Laikin and his team flew to Europe. Dangaard execs flew here. In between, there were numerous conference calls. By December, Laikin was giving tours of his Plainfield operations, and the investment firm Deutche Bank was working up scenarios to value Dangaard.

With little overlap and a common purpose, the merger seemed to make more and more sense.

"It was the perfect combination, like chocolate and peanut butter turning into a Reese's Peanut Butter Cup," Laikin said.

But then the honeymoon abruptly ended.

"Typically, price is the biggest issue, and the second is who's in charge of the merged company. We had a very tough, difficult negotiation," Laikin said. "Both sides said, 'We're too far apart.'"

Nordic Capital wanted more for its shares than Brightpoint was willing to pay. So in late December, the two companies began marathon negotiations to attempt to iron out all the other obstacles, such as how many Dangaard executives would sit on the combined board.

The sides narrowed their differences, but barriers remained.

Brightpoint created a pair of backup plans. One was to cede the European market to Dangaard and focus Brightpoint's attention elsewhere. Laikin considered offering the management of each of Brightpoint's five European offices the opportunity to purchase their operations.

Another plan was to ramp up Europe and face Dangaard directly by staging a new series of small acquisitions--the same plan Brightpoint tried and failed with a decade ago.

Finally, in mid-January, the companies had a breakthrough.

Dangaard's owners agreed to accept 30 million Brightpoint shares, giving them a 37-percent stake in the merged company. The nine-person board would have three Dangaard representatives, and its managers would remain in charge of the European operation.

The combined firm would have more than 3,100 employees in 25 countries. The deal, scheduled to close in July, is expected to generate $8 million to $10 million in cost savings, though local employment could grow. Brightpoint has a 50-person headquarters staff in Plainfield. In addition, it employs about 800 full-time or temporary workers at its Plainfield distribution centers.

Growing with the industry

Remaining at the helm will be Laikin, who founded the company in 1989. He had been running a ticket-brokerage business when a salesman paid him a visit that changed his life.

The man pulled out a 25-pound briefcase and showed Laikin what was inside--a clunky early model of a cellular phone. Laikin was so intrigued he agreed to pay $1,400 for the phone, antenna and programming--and he decided to set up a company to sell the phones himself.

He was a young man in a young industry that's since grown explosively.

Even without the Dangaard acquisition, Brightpoint was a major player, handling nearly 5 percent of the world's handsets. By 2011, when the market will be far larger, Laikin thinks the merged company can top 10 percent.

Now, Brightpoint has the scale to get there, plus access to additional management firepower from a company with a similar corporate culture.

"It's funny. The folks at Dangaard remind me of Hoosiers, Midwesterners," Laikin said. "They have incredible integrity. Very straightforward and honest, not flashy at all," he said. "It's like we're distant cousins."

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