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Encore Wire (WIRE +12%) is stringing up some nice gains today after this US-based manufacturer of copper and aluminum electrical wire and cables agreed to be acquired. Italy-based Prysmian is also a huge supplier of cable. The price tag is $290 per share, for a total enterprise value of €3.9 bln. This represents an 11% premium from Encore's $260.98 closing price on Friday and a 20% premium vs the 30-day volume weighted average share price (VWAP).

• A main benefit is that the deal greatly increases Prysmian's exposure to the North American market. Prysmian also cited Encore Wire as being highly complementary to its strategy and that the deal will allow Prysmian to increase its exposure to secular growth drivers. Prysmian expects to generate ~€140m in run-rate EBITDA synergies within four years.
• Prysmian also plans to leverage Encore Wire's operational efficiency across Prysmian's portfolio while broadening Prysmian's product offering. Specifically, Encore Wire is known for being a low-cost producer via its expansive single-campus model and centralized distribution. Following the transaction, Prysmian expects to maintain a significant presence at WIRE's single-site Texas campus.
• The combination will create a massive wire and cable company with global reach. The combined group posted annual sales above €17.7 bln and adjusted EBITDA of approximately €2.1 bln. The transaction has been unanimously approved by each company's Board of Directors and is expected to close in 2H24. An interesting wrinkle is that the deal provides WIRE with a 35-day go-shop period wherein it can seek higher bids.

Overall, we think the $290 price tag, all-in cash, is an attractive price tag for WIRE shareholders. You have to keep in mind that WIRE's financial results are known to be volatile over the years. They tend to rise and fall with copper prices because copper makes up nearly 80% of its raw material costs. Right now, times are good for WIRE as you can see in the share price rising from $165 last September to $261 on Friday. It is good to strike while the iron is hot.

We also think the go-shop provision adds another layer of benefits for WIRE shareholders. If shareholders think they are being short-changed, this gives management the opportunity to find a better deal and see what the market will bear. After that is concluded, it would be difficult to argue WIRE shareholders did not get maximum market value.

We also believe this is a good deal for Prysmian, which greatly expands its exposure to North America and it picks up a very efficient producer. Perhaps Prysmian can apply WIRE's efficient practices to other parts of its business.