Axis Communications? board of directors have unanimously recommended that its shareholders accept an offer from Canon Inc to buy the company for 23.6bn Swedish kronor (US$2.82bn)
If the deal does go through it will be Canon?s second major acquisition in the security space in less than 12 months after agreeing to buy Milestone Systems shortly before IFSEC International 2014.
A worldwide household name in the consumer camera business, the Japanese giant has struggled to break into the surveillance market.
With the acquisition of Axis, the world?s eighth biggest security company according to the 2013 asmag Top 50, will raise Canon into a global leadership position alongside the likes of Panasonic, Samsung Techwin, Tyco Security Products, and Hikvision in the video surveillance market.
Buying the Swedish surveillance pioneers, which launched the world?s first-ever network camera in 1996, would give it a serious foothold in a global surveillance market expected to be worth more than US$42Billion by 2020.
The value of Axis? stock has also soared 14% this year with the company?s recent entry into the access control market.
A statement from the board of directors at Axis said that Roland Vejdemo, chairman of the board of directors, was ?of the following opinion – Axis has a potential for an accelerated growth that could create a greater value than the Offer and thus be of interest for investors with a long-term perspective.
?However, he is of the opinion that the current stand-alone plan would not lead to a greater value than Canon?s offer in a long-term perspective. New future scenarios, including acquisition strategies, which the Board of Directors, together with its financial advisors, have modeled to assess the opportunities for Axis to achieve a greater value than Canon?s offer, includes too many and great risks.”
Roland Vejdemo has also, amongst other, taken into account the advice of the financial advisor of the Board of Directors when forming his opinion. Therefore, he recommends for shareholders to accept the offer from Canon also in a longer term perspective.?
Canon?s offer, which comprises an agreement to buy Axis shares at 340 kronor each in cash (nearly 50% more than the stock?s closing price on Monday), is conditional to a dividend that Axis intends to pay its shareholders.
Revenue from Canon?s traditional camera business has fallen for the last three consecutive years, although this has been offset to some extent by rising sales of printers, peripherals and other office products.
In a research note published by research firm IHS, Jon Copley reported:
This is a massive development in the video surveillance equipment market. Until last year, Canon was a small player in this market. However, back in August 2013, it revealed big ambitions when its CEO, Fujio Mitari, spoke about security cameras becoming an ?important pillar? for the company and the market having ?limitless possibilities for growth.?
Then in June 2014, Canon acquired the world?s largest supplier of video management software, Milestone Systems.
Now, Canon is purchasing the world?s largest supplier of network cameras. All of this shows just how seriously Canon is about expanding its interests in the video surveillance equipment market.
IHS estimates that Axis Communications was the third largest supplier of video surveillance equipment in 2014 with over 5% of a global market worth around $15 billion.
Despite this, the company has faced intense competition, particularly from Chinese rivals in recent years. The largest of these, Hikvision and Dahua, have both been gaining market share faster than Axis.
At the same time, the average selling price of a network camera has more than halved between 2010 and 2014.
Canon?s acquisition of Axis is the latest in a number of major changes to the structure of the supply chain for video surveillance equipment.
It comes just two months after Samsung Group sold Samsung Techwin. Today, the supply chain remains highly fragmented.
The top fifteen suppliers account for less than 50% of revenues and there are thousands of small suppliers.
Consolidation has been anticipated for some time and Canon?s purchase of Axis could be just the start of a series of industry acquisitions in 2015.
Jon Cropley, Principal Analyst
Video Surveillance & Security Services
http://www.ihs.com
Statement of the Board of Directors of Axis in relation to Canon?s public offer
The Board of Directors of Axis has based on a financial short and mid-term perspective concluded to unanimously recommend that the shareholders of Axis accept the public offer made by Canon.
Background
This statement is made by the Board of Directors (the ?Board of Directors?) of Axis Aktiebolag (the ?Company? or ?Axis?) pursuant to section II.19 of Nasdaq Stockholm?s Rules concerning Takeover Bids on the Stock Market (the ?Takeover Rules?).
Canon Inc. (?Canon?) has today announced a public offer to the shareholders of Axis to transfer all of their shares in Axis to Canon for a consideration of SEK 340 in cash per share in the Company (the ?Offer?).
The total value of the Offer is approximately SEK 23.6 billion * and represents a premium of:
approximately 49.8 per cent compared to the closing price of SEK 226.9 for the Axis share on Nasdaq Stockholm on 9 February 2015, which was the last trading day prior to the announcement of the Offer;
approximately 64.4 per cent compared to the volume-weighted average price paid of SEK 206.8 for the Axis share on Nasdaq Stockholm during the last 30 trading days prior to announcement of the Offer;
approximately 70.6 per cent compared to the volume-weighted average price paid of SEK 199.3 for the Axis share on Nasdaq Stockholm during the last 90 trading days prior to announcement of the Offer; and
approximately 35.6 per cent compared to the highest quoted price paid for the Axis share since the Axis share was first admitted to trading on 27 June 2000 (which was SEK 250.8, recorded on 29 November 2013).
However, it should be noted that the Offer will be adjusted for any dividend distributed by Axis made prior to the settlement of the Offer.
The Board of Directors of Axis has proposed a dividend of SEK 6.00 per share with a record date on 25 March 2015.
If the Axis? Annual General Meeting decides upon the proposed dividend, the adjusted Offer would be SEK 334 per share.
The acceptance period of the Offer is expected to commence on 3 March 2015 and is expected to expire on 1 April 2015.
The Offer is conditional upon, inter alia, being accepted to such an extent that Canon becomes the owner of more than 90 per cent of the shares in Axis. Canon has reserved the right to waive this and other completion conditions according to the Offer.
The Offer is not conditional upon financing. For further details about the Offer, please refer to Canon?s press release.
The Board of Directors has, at the written request of Canon, given Canon permit to carry out a limited confirmatory due diligence investigation in connection with the preparation for the Offer. Canon has in connection with such investigation not received any non-public price-sensitive information.
Each of the Company?s three largest shareholders **, which together hold approximately 39.5 per cent of shares and votes in the Company ***, have through separate agreements entered into in January 2015, undertaken to accept the Offer and transfer their respective shares to Canon subject to certain conditions ****.
Board members Gustaf Brandberg, director of the board of directors of Inter Indu AB, Olle Isberg, employed by LMK Industri AB, and Martin Gren, through Aktiebolag Grenspecialisten one of the main shareholders in the Company, have, due to conflict of interest based on the above mentioned undertakings, not participated in the Board of Directors? handling of, or decisions relating to, the Offer. All of the remaining board members of the Company, which are all independent in relation to the Company, the management and the Company?s major shareholders, have participated in the handling of the matter and, hence, required quorum of the Board of Directors has been satisfied.
The Board of Directors has engaged Morgan Stanley & Co. International plc as financial advisor and Gernandt & Danielsson Advokatbyr