Zebra gambles $3.25bn on future of tracking technology in Motorola deal
Zebra Technologies Corp is borrowing money to fund most of its $3.45bn (€2.5bn) purchase of a Motorola Solutions unit, piling on debt in a bet on the future of tracking technology.
Zebra plans to finance the deal with about $200m of cash and $3.25bn in debt. That's almost as much as Zebra itself is worth, based on yesterday's closing stock price, which valued the company at about $3.4bn. Its debt level will go from zero to about five times its adjusted annual profit.
The gamble is that corporate customers need more technology to track their products and employees. Both companies offer barcode scanning, radio-frequency identification and other technology that companies can use to control their inventory, whether it is retailers stocking shelves or hospitals recording doses of medicine. Motorola also has specialised tablets and computers for various industries.
"We felt this was the most cost-effective way to structure a deal – the way for us to generate the most shareholder value," Zebra CEO Anders Gustafsson said. He ruled out further meaningful deals in the immediate future, saying the company's focus would turn to paying down debt.
Zebra shares sank, even after chief financial officer Mike Smiley told analysts that the company would work to reduce its debt leverage to three times earnings within three years.
The stock slumped as much as 8.7pc, the biggest intraday decline since February 2012.
Morgan Stanley, Zebra's adviser on the deal, is fully underwriting the financing. That's giving Zebra a way to join companies from Intel Corp to Nvidia Corp in investing in technology for the market known as the Internet of Things, where objects with sensors are connected online and can be moved or altered based on their location and conditions.
"Motorola does not have the enterprise focus or creativity to compete with tablets and iPhones – I think Zebra does," said Michael Genovese, an analyst at MKM Partners. "This is a good transaction from that perspective." (Bloomberg)