Match made in power

PCP, Norwegian vendor set to finalize merger Sometimes the marriage between two companies is a foregone conclusion.

Such was the way with Power Conversion Products and Eltek when they announced their intent to merge at Intelec 2000. Approved by shareholders last month, the joining of Crystal Lake, Ill.-based PCP and Drammen, Norway-based Eltek will give each company what it previously lacked: a local footprint in an international market.

"Only global players will succeed in a global market," said Chris F. Seyer, president and COO of Power Conversion Products. "The U.S. carriers are going into Europe and Asia and European carriers are coming to America." Seyer, who co-founded PCP in 1969 with Edward Weil, will serve as CEO of PCP and report to Eltek's Morten Angelil, who will be CEO of the merged company.

Under terms of the agreement, PCP will become a subsidiary of Eltek ASA, the holding company for Eltek Energy. The stock-for-stock transaction will give current PCP stockholders 40% ownership of the merged company. CC Industries, which owns PCP, will control 30% of the merged company and retain a seat on its board of directors.

The merger makes sense in an industry where local branding is so important, the companies said. Local service providers "really want to buy equipment from a local company. It's a natural to offer similar products but that are made and distributed locally," Seyer said. For example, if a company such as PCP plans to sell its wares in Germany, it has to have a distribution point in that country. "It's much more nationalistic [in Europe]," he added.

Eltek and PCP had a brief courtship that included a reciprocal sales/service agreement hammered out in May. "We could sell our stuff; they could sell their stuff," Seyer said. "We wanted to get to know their products better." Once the companies realized how complementary they were in terms of outsourcing philosophies and sales territories, they forged a more permanent relationship. And despite the distance factor, the companies do not foresee any difficulty in merging the two corporate cultures. "We all agree that outsourcing is key. Whether you outsource in China or Mexico, once you're on that wavelength it helps a lot," Seyer said.

As is often the case with vendor mergers, it was important that the companies' customers not overlap. Eltek's customer base has traditionally centered around European, Asian and Australian carriers. Most of PCP's customers have been in North and South America, though it also has a presence in China.

However, it may be necessary for PCP and Eltek to tweak their product lines to compensate for overlap. "The products complement each other but there's a little bit of conflict and we may be reducing our product line a little bit," Seyer said.

Given the impending rollout of universal mobile telecommunications system (UMTS) services in Europe, now is an especially good time for Eltek and PCP to join forces, said Ola Nordtomme, an analyst with Alfred Berg based on Oslo, Norway. "Between two to three percent of investment in UMTS networks will be in power supply," he said. "The [UMTS] customer is going to require a large volume of equipment in a short period of time. We think that orders are going to boom for these companies."