Arrow Acquires Chip One Stop (ARW)

Arrow Electronics, Inc. (ARW) recently announced that it has successfully completed an all-cash tender offer to acquire Japan-based Chip One Stop.

On August 16, Arrow announced that it will launch a tender offer to acquire all of the common stock of Chip One Stop for ¥220,000 per share ($2,857 per share). Based in Japan, Chip One Stop supplies electronic components to design engineers. The company partners with more than 700 suppliers of electronic components and allows customers to access selected stocked parts data and a sourcing request service through a comprehensive database with more than 8 million line items.

Management stated that the acquisition will strengthen Arrow’s presence in one of the largest electronics markets in the world. In 2010, Chip One Stop generated sales of approximately $47 million. As of June 30, 2011, Chip One Stop has more than 107,000 registered web customers in Japan buying from more than 36,600 companies.

Arrow also announced that Arrow Enterprise Computing Solutions, a business segment has created a North American multi-vendor, multidimensional enablement program revolving around high-growth technology areas. This program has been dubbed as “Empower” and currently includes five practice areas offering data-driven vision, direction and expertise to deliver solutions and services that create business value.

Management stated that the “Empower” program gives solution providers guidance and support around key technology trends that are predicted to continue growing as data centers become more complex.

We recently downgraded our recommendation to Neutral from Outperform on Arrow Electronics.

Earnings estimates have declined in the last thirty days. Although second-quarter results came in line with the Zacks Consensus Estimate, the guidance for the third quarter was disappointing.

Arrow expects 2011 sales between $5.15 billion and $5.55 billion in the third quarter. Management stated that the core global components business is expected to be in line with the low-end of normal seasonality resulting from oversupply of inventory in the supply chain at the end of the second quarter and weaker global macroeconomic conditions.

In the short-run, we have a Zacks #4 Rank, which translates into a short-term rating of Sell, primarily due to the near-term pressure on the stock because of the weakness in guidance.

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