Electronics parts distributor Arrow Electronics, Inc. (ARW) recently announced that it has settled its long-standing dispute with E.ON SE and VEBA Electronics LLC.
Arrow entered into a settlement agreement with E.ON SE and VEBA Electronics LLC for certain disputes, which originated after Arrow acquired Wyle Electronics from the VEBA Group 12 years ago.
In August 2000, Arrow acquired Wyle Electronics and thereby assumed its outstanding liabilities, which included responsibility for environmental problems at two previously owned sited of Wyle. The two sites were Norco, California and Huntsville, Alabama. To date, Arrow has spent approximately $45.0 million for these environmental issues.
Hence, Arrow sued E.ON AG in the Regional Court in Frankfurt, Germany as the latter although acknowledged liability with respect to the Norco and Huntsville sites and made a small initial payment; it refused to make further payments subsequently.
As per the settlement agreement, all litigations among Arrow, E.ON and VEBA, including all claims and counterclaims before the District Court of Frankfurt am Main in Germany, will be dismissed. This settlement will be final and irrevocable and includes settlement of income tax disputes as well.
In addition, the settlement agreement provides that Arrow will retain the right to past insurance recoveries and any future amounts recovered from pending claims or claims yet to be asserted.
Meanwhile, Arrow expects that the settlement amount together with any insurance recoveries will be sufficient to cover potential future costs relating to environmental clean-up activities and any other asserted or unasserted claims in connection with the Wyle acquisition. However, management does expect that unexpected costs might crop up beyond the accounted levels.
Most recently, Arrow announced that it will acquire all the assets and operations of the wireless and infrastructure business unit of Waching Company Ltd.
China based distributor Waching is well positioned in the fast growing wireless and infrastructure market.
The company has operations in Shenzhen, Shanghai, and Beijing and expects to report sales of $33 million in 2012. Arrow expects the acquisition to propel the company's expansion into fast growing Asian markets.
In recent times, Arrow is subjected to significant competitive pressures from the likes of Richardson Electronics Ltd. (RELL) and Avnet, Inc. (AVT).
As of now, we maintain a long-term Neutral recommendation on the stock. Our recommendation is supported by a Zacks #3 Rank on the stock, which translates into a short-term rating of Hold.