One of Intermec’s major competitors is Schaumburg, Illinois-based Motorola Solutions Inc (NYSE:MSI). After focusing for years on wireless cellular hardware, Motorola Solutions Inc (NYSE:MSI) now devotes significant amounts of energy to the wireless data and connectivity markets. RFID technology represents a substantial part of this drive. For Intermec Inc. (NYSE:IN), the Honeywell acquisition offers a golden opportunity to compete with a major company like Motorola Solutions Inc (NYSE:MSI) on its own terms. Motorola Solutions Inc (NYSE:MSI) has seen a 6.1% growth in revenue over the last year. With its good profit margin, earnings actually increased over 82%.
How the Deal Is Structured
Under the terms of this deal, Honeywell International Inc. (NYSE:HON) will issue cash payments of $10 per share to all Intermec shareholders. Relative to the company’s current price of $9.80 per share, this represents a premium of roughly 2 percent. Relative to Intermec’s pre-announcement closing price of $8 per share, this deal offers a premium of about 25 percent. Honeywell will also assume the bulk of Intermec’s $68 million in outstanding debt.
Complications and Legal Issues
After a wide majority of Intermec Inc. (NYSE:IN)’s shareholders voted to approve this transaction, the last major hurdle to its completion has fallen by the wayside. As such, it seems quite likely that the deal will go through as planned. Crucially, there is no significant legal action pending on the matter.
Although the deal continues to be subject to the standard conditions that all U.S. mergers must meet, it appears unlikely that anything will arise to delay or scuttle the deal at this late hour. While the FTC has served Honeywell and Intermec with a request for additional information, such a move is quite common in mature industries that lack a breadth of major players. Indeed, neither company’s management team appears to be bothered by the slight setback. Should the deal remain on track, it may close as early as the end of the second quarter of 2013.
Long-Term Outlook and Possible Plays
Although RFID bulls have been touting the game-changing potential of the technology for many years, it has never been adopted with the fervor that many expected. Specifically, it has not yet become the de facto means by which shoppers purchase their goods. Indeed, it appears as if such “integrated” applications remain years or even decades in the future. However, RFID does have a wide range of current uses in commerce, security and other areas. Accordingly, this deal makes intuitive sense and may contribute substantially to Honeywell’s bottom line in the out-years. Given Intermec Inc. (NYSE:IN)’s poor financial situation, the acquisition is a far better short-term deal for the smaller company’s shareholders.
Going forward, it seems likely that Honeywell International Inc. (NYSE:HON) will put this new property to good use. Accordingly, investors who believe in the potential of RFID technology can pocket a small premium by purchasing Intermec Inc. (NYSE:IN) at these levels. If Honeywell experiences a post-deal dip, that premium could easily be leveraged to buy into the newly combined company at a discount.
The article The Conglomerate Makes Another Acquisition originally appeared on Fool.com and is written by Mike Thiessen.
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