Is Xaar for Sale? Could the Buyer’s Name Start with “A”? “K”?

Commentary by Andrew Tribute

November 21, 2006 -- An interesting item of news last week that has generated significant speculation concerning inkjet printhead company Xaar was the following notification on the Xaar Web site of an unsolicited potential offer for the company:

“Xaar plc (‘Xaar’ or the ‘Company’) announces that it has received an unsolicited approach from Danaher Inc. (‘Danaher’) in relation to a possible offer for the Company at between 200–220 pence per share in cash. After consideration, the Board rejected this approach. Whilst an offer on these terms would represent a premium of between 38.5–58.5 pence to the closing share price of 161.5 pence on 13 November 2006, more relevantly it would represent a discount of between 118–138 pence to the 12-month share price high of 338 pence. The Board views the timing of this approach as opportunistic. It continues to be confident in the longer-term prospects of the Company in a rapidly growing market, as well as in the strategic value of its digital ink-jet technology. Accordingly, the Board advises shareholders to take no further action at this time.

“This announcement is made without Danaher's consent. There can be no certainty that an offer will be made nor as to the terms on which any offer might be made.”

Following this notice the Xaar share price has increased by 40% in anticipation of a formal offer or even a bidding war for the company. Danaher is an acquisitive, $22 billion market value, U.S. based company whose business activities encompass three reporting segments and are comprised of six strategic platforms: professional instrumentation (environmental, medical technology, electronic test), industrial technologies (motion, product ID) and tools & components (mechanic’s hand tools).

In 2005 it acquired another U. K. company with connections in the inkjet printing area, Linx Printing Technologies. Linx, a part of Danaher's product identification platform, is a global technology leader in the design and manufacture of industrial continuous ink jet (CIJ) printers, impulse jet printers and laser coders. Linx printers and coders are used on production lines in a wide range of manufacturing sectors, including food, beverage, pharmaceutical, cosmetics, automotive and electronic industries, where product identification codes, batch numbers, use by dates and barcodes are required.

At the Head of the Class in Printheads

Xaar, a world leader in the manufacture of drop-on-demand piezo inkjet printheads, inks, and peripheral equipment, has the widest range of customers of any printhead supplier. It has a major level of intellectual property ownership with over 750 patents. Many of the key suppliers of inkjet-based printers in the graphic arts markets utilize Xaar’s technologies. Xaar is also unique among printhead suppliers in that it licenses its technologies to other manufacturers for building printheads. It has nine manufacturing licenses with other companies including Brother, Konica-Minolta, Toshiba-TEC, Seiko Instruments and Sharp.

Much of the speculation in the past week since the announcement of interest in Xaar by Danaher concerns whether a full bid will be made, and also if any other companies are likely to make a bid for Xaar.

With the recent acquisition by Fujifilm of Dimatix, whose Spectra printheads are Xaar’s main competitors in the market, one has to wonder if another similar consumable industry leader may be interested in acquiring Xaar. The company that obviously springs to attention is Agfa.

In 2004 Agfa and Xaar announced a strategic agreement for joint research, development and manufacturing of next-generation inkjet printheads. The agreement covers a five-year period and will give Agfa access to inkjet technology for new applications in commercial, package and newspaper printing. Agfa and Xaar have co-operated to jointly develop and manufacture a new range of printheads, which are capable of meeting various application requirements. Agfa is now shipping a range of inkjet-based products using Xaar printheads. The question is, does Agfa see the benefit of owning an inkjet printhead manufacturing company in the same way that Fujifilm does?

One may also question whether Kodak’s Graphic Communications Group would see the benefit of adding a leading drop-on-demand piezo inkjet printhead company to its portfolio. This would allow it to offer both drop-on-demand and continuous inkjet print technology, which it currently supplies through its Versamark operation.

On the Other Hand...

This also raises the question whether any other inkjet printer manufacturer using Xaar printheads would see the benefit of owning Xaar. I asked this question of one major inkjet printer supplier recently and was told there was no reason to own a printhead company when there were so many suppliers competing for the business. I was also advised that most printer manufacturers use a range of heads from various suppliers because of the different specification and functionality of the printheads.

The potential bid by Danaher values Xaar in the region of £128 ($242) million. If Xaar is correct in rejecting this bid and is holding out for the maximum value the shares reached in February 2006 it would appear Danaher or another company would need to pay around £204 ($386) million. It is interesting to note that financial analysts in the U.K. are advising Xaar shareholders to hold on.

What do you think of Andy's view? Please offer your feedback to Andy via email: tribute@attributes.co.uk.

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