As Raychem Corp. prepares to be assimilated into Tyco International Ltd.'s electronics division, OEM customers and channel partners are wondering how distribution policy will be affected.
Raychem, Menlo Park, Calif., earlier this month agreed to be acquired by Hamilton, Bermuda-based Tyco. The $2.94 billion deal, expected to be completed in August, will mark the second major electronics buy the conglomerate has made in less than a year.
The first was connector giant AMP Inc., which Tyco took into its fold last month. Tyco plans to incorporate nine of Raychem's 11 product lines into AMP, with the remainder going into other Tyco units.
While Tyco executives said Raychem will complement Tyco's electronics division, AMP's and Raychem's respective distribution rosters have little in common.
Of AMP's 26 distributors and Raychem's 38, only three-Cherokee Nation Distributors Inc., Hammond Electronics Inc., and Kent Electronics Corp.-carry both AMP and Raychem on their line cards.
And since a large portion of Raychem's business will be folded into AMP, it is still unclear whether Raychem's distributors will have to adhere to AMP's distribution policy. In 1996, AMP effected a policy that prevented its channel partners from carrying more than two major and four minor competitive connector lines.
However, two of AMP's largest distributors-Kent and Avnet Inc.-didn't conform to the policy by a certain deadline, forcing AMP to change the policy.
In what AMP refers to as the "Rule of Six," the connector maker's distributors today can carry three major and three minor competitive lines. Whether AMP will change its strict guidelines under its new owner and its vice president of global distribution and electronic commerce, Charles Bartlett, is still unknown. Bartlett recently told EBN, though, that AMP's policy could be revised in the future.
Nearly half of Raychem's annual sales go through distribution, and AMP is the channel's leading connector supplier by dollar volume, posting more than $540 million in sales through distribution in 1997, according to Fleck Research, Santa Ana, Calif.
Raychem and Tyco are in the process of putting together an integration team that in the coming weeks will examine the companies' distribution structure and determine how best to rationalize the existing relationships. Details won't be available until after the summer, said Carla Mahrt, Raychem's North American distribution manager for OEM components.
Until then, AMP and Raychem distributors won't know how their line cards will be affected by the merger, while buyers of those companies' parts are left wondering who their sources will be in the fall.
"If somebody had asked me three months ago who Tyco was, I wouldn't have had a faint idea," said Craig Conrad, senior vice president at TTI Inc., a Raychem distributor. "But I think ... it's way too soon to understand what the impact is, because they really haven't made any announcements [about their intent]."
Ken Fleck of Fleck Research noted that only about $100 million of Raychem's $1.8 billion in revenue comes from connector and interconnect sales, so the impact of a merger with AMP on the distribution channel will likely be minimal.