TEXT-S&P comments on Ingram Micro Inc

Tue Jul 3, 2012 1:57pm EDT

July 3 - Standard & Poor's Ratings Services said today that the announcement by Ingram Micro Inc. (rated 'BBB-' with a stable rating outlook) that it has entered into a definitive agreement to acquire Brightpoint Inc. (unrated) for $840 million (including $190 million of Brightpoint's debt net of cash) does not affect our rating or outlook on the company. Ingram intends to fund the acquisition through a combination of existing credit facilities and cash on hand. We expect the transaction to close by the end of 2012. At March 31, 2012, the company had full availability under both its $750 million revolving credit facility and $500 million accounts receivable securitization program, and had close to $1 billion of cash balances. In conjunction with this transaction, the company has also secured a commitment for an additional $300 million debt facility. We believe that the Brightpoint acquisition is consistent with Ingram's strategy of further penetrating the value-added logistic services market and diversifying into the adjacent mobile distribution business. Furthermore, Brightpoint possesses higher margins than Ingram's core distribution business, and should provide additional revenue and cost synergies. We also believe that the company's "adequate" liquidity (as per our criteria) provides it with sufficient capacity to complete this transaction, fund its ongoing highly intensive working capital needs, and balance future acquisitions and shareholder return objectives without causing financial metrics to exceed those that are appropriate for the current rating and outlook. We expect that pro forma leverage will peak at just under 2.5x, excluding potential synergistic benefits and assuming the company uses a mix of debt and cash on hand to finance the acquisition. Leverage was about 2x on March 31, 2012, and we anticipate that it will move back toward this level over the next 18 months with the company using free cash flow primarily for debt reduction over this period. The rating on Ingram reflects the company's "satisfactory" business position, which includes recognition of its diversified customer and geographic base, and "intermediate" financial risk profile, incorporating low 2x leverage and funds from operations to debt above 30%. Relatively thin profitability levels, currently tepid global technology spending, and highly competitive industry conditions partially offset these factors.