Multi-Fineline Electronix Inc., an Anaheim maker of flexible circuit boards, dodged a bullet last week in a shotgun marriage.
Now it’s back to the turnaround.
The company, known as M-Flex, hit a rough patch last year as key customer Motorola Inc. saw a slowdown in cell phone sales.
All the while, M-Flex had been fighting its Singaporean parent, WBL Corp., over an unwanted combination with sister company MFS Technology Inc.
Last week, WBL shareholders voted against the deal, to the relief of M-Flex and Wall Street.
“The acquisition overhang is removed from the M-Flex story,” said Amit Daryanani, an analyst with RBC Capital Markets. “This should enable M-Flex to focus on running the business and improving profitability.”
Now M-Flex, which declined to comment for this story, can focus all of its attention on a big task: diversifying its customers.
Motorola Inc., which makes up 68% of M-Flex’s $500 million in yearly sales, has been struggling to sell phones after peaking with the Razr. The slim phone’s flexibility was made possible by an M-Flex circuit board.
A combination with circuit board maker MFS would have brought even more dependence on Motorola.
“It’s fundamentally good for the company” that the deal didn’t happen, Daryanani said.
M-Flex has made some progress, analysts said.
Sales to customers other than Motorola were up 30% in the March quarter from the December quarter. Sweden’s Sony Ericsson Mobile Communications AB made up about 10% of sales.
M-Flex could see a boost in the second half of the year as the company works on products with Sony Ericsson and others, Daryanani said.
M-Flex has alluded to having another customer that is set to make up 10% of sales by the end of the year. So far, it hasn’t named the customer.
It could be LG Electronics Inc., Samsung Electronics Co., Royal Philips Electronics NV or Research In Motion Inc., industry watchers say.
Some even speculate it could be Apple Inc. and that M-Flex may have a role in the iPhone.
With M-Flex’s own issues and its long fight with 60%-owner WBL, some wonder whether M-Flex is set to stay part of the family. As part of M-Flex’s fight, it sued WBL last year on behalf of minority shareholders.
“M-Flex has been going through quite a bit of turbulence,” Daryanani said. “Clearly (a sale) is an option on the table if WBL wants to liquidate.”
WBL might not be the only one. Analysts said they are watching Stark Investments LP, a Milwaukee-based firm that owns about 18% of M-Flex.
“We could see a surge of liquidity if Stark decides to exit the investment in the near term,” Daryanani said.
Last week, investors seemed pleased to wash their hands of M-Flex’s drawn out battle. The company’s shares jumped about 7% when WBL shareholders voted not to combine M-Flex with MFS, which is 55% owned by WBL.
M-Flex had a market value of $420 million last week.
WBL proposed the deal a year ago, and M-Flex initially complied.
M-Flex’s board offered $450 million for MFS, but later came out against the deal when MFS reported slower-than-expected sales and a steep loss.
The deal had other sticking points.
“The transaction value would have derailed M-Flex’s balance sheet,” Daryanani said.
M-Flex would have had to take on about $220 million in debt and finance the rest by selling shares, said Dan Su of Moringstar Inc.
Earlier this year, M-Flex begrudgingly went through the motions of filing the required paperwork to buy MFS with the Securities and Exchange Commission.
At the same time, it vocally urged minority shareholders to vote against a deal.
