Anixter International Inc.

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Anixter International Inc.

2301 Patriot Boulevard
Glenview, Illinois 60026
U.S.A.
Telephone: (224) 521-8000
Toll Free: (800) 264-9837
Fax: (224) 521-8100
Web site: http://www.anixter.com

Public Company
Incorporated: 1957 as Anixter Brothers Inc.
Employees: 6,800
Sales: $4.9 billion (2006)
Stock Exchanges: New York
Ticker Symbol: AXE
NAIC: 423610 Electrical Apparatus and Equipment, Wiring Supplies, and Related Equipment Merchant Wholesalers

Based outside Chicago, Illinois, Anixter International Inc. describes itself as a supply chain services company and distributor of wire, cable, communications and physical security products, fasteners, and other small parts known as Class C components. All told, Anixter offers more than 350,000 different items procured from more than 5,000 suppliers to about 95,000 customers, which include original equipment manufacturers (OEMs), engineers, contractors, installers, and wholesale distributors. Anixters supply chain services include sourcing, from finding the right products to handling the payments; logistics, ensuring supplies are transported quickly and accurately; inventory management, making certain materials are in ample supply and ready as needed; and deployment, efficiently dispersing materials to wherever a customers operations require them. Although a public company listed on the New York Stock Exchange, Anixter is majority-owned by its chairman, celebrated Chicago investor Samuel Zell.

DISTRIBUTION BUSINESS FOUNDED: 1957

Although the corporate lineage of Anixter International is that of a Zell company that assumed the Anixter name, the heart of the business lay with Anixter Brothers Inc., founded in 1957 in Evanston, Illinois, by brothers Alan B. Anixter and William R. Anixter on an investment of $10,000, most of which was borrowed from their mother. The eldest, Alan, was born in Chicago in 1920. He traveled east for an Ivy League education, earning an undergraduate degree from the University of Pennsylvania in 1941, followed two years later by an M.B.A. from the universitys Wharton School, the worlds oldest collegiate business school. Upon graduation he went to work at Telmor Engineering Company in Chicago, staying three years before moving on to Rhode Island Insulated Wire Company in Cranston, Rhode Island, in the same year that his brother William joined the company. Three years younger, William Anixter had his education delayed because of a two-year stint in the U.S. Army during World War II. He earned a bachelor of arts degree from Northwestern University in 1946 before relocating to Cranston.

When the Anixter brothers struck out on their own to become resellers of electrical wire and cable for power and control applications, they quickly expanded the business by aggressively snapping up other suppliers, as well as some companies involved in peripheral lines of business. After ten years Anixter grew annual sales to the $10 million mark and continued to make acquisitions. The company was taken public in 1967 and began using its common stock to fund further acquisitions. In 1968, for example, Anixter bought 14 companies, including Santa Clara, California-based F&D Precision Chassis; Mark Products, a Skokie, Illinois, maker of communications equipment, such as antennas and microwave components; Creiger Electrical Manufacturing company; Oakland, California-based Harbor Marin Electric Supplies, Inc.; and Chicagos Royal Electric Manufacturing Company, maker of high voltage products.

In 1969 Anixter moved its headquarters to Skokie and continued to use stock to buy assets. Alan Anixter told the Chicago Tribune that he carried a list of possible acquisitions in his coat pocket. Some of the ones that became reality included Glenbard Tool Manufacturers, Inc., maker of precision tools used in the aerospace, automotive, heavy earthmoving equipment, and other industries; New Orleans-based Owesen & Co., Inc., a distributor of shipyard and industrial cable and electrical equipment; and Owesens affiliate Moer Services, Inc., which manufactured total electrical power systems for offshore oil rigs. Also in 1969 Anixter acquired Pruzan, a company that provided entry to the CATV (community antenna television) market, an important revenue stream in years to come. Less successful was the addition of Patterson Steel Company, a fabricator of structural steel that was mostly used by the utility industry. The unit struggled, leading to a net loss for the parent company in fiscal 1972, the first time Anixter was in the red. Patterson was sold in July 1973.

NEW YORK STOCK EXCHANGE LISTING: 1975

Anixter rebounded nicely and in fiscal 1974 increased sales to $150 million. In 1975, when it gained a listing on the New York Stock Exchange, Anixter was described by the Chicago Tribune as a supermarket chain for cable and wire. The company operated facilities across the United States and Canada to distribute a vast array of electrical wire and cable, and maintained offices in the United Kingdom and the Netherlands as well. Furthermore, Anixter distributed CATV items, and its manufacturing division, contributing about a fifth of all revenues, made products that relied on wire and cable, as well as equipment used in telephone communications and the transmission of electricity, and the microwave antennas produced in Skokie by Mark Products, known as the Anixter-Mark division. Some of those antennas were sold to Iran, an important U.S. ally at the time, as part of the communications and control system for the countrys oil fields and pipeline network.

Fast growth caught up to Anixter in fiscal 1976 and 1977 when earnings dipped, also due in large measure to strong price competition with wire and cable mills. The company bounced back in the second half of the 1980s, primarily on the strength of its distribution business. After net income fell to $3 million in fiscal 1977 on the strength of $173.1 million in revenues, Anixter ended the 1970s with sales of $268.7 million and net income of 8.4 million. The following year, in spite of a difficult economic picture, sales soared to $343.4 million and net income to $14.2 million, leading to a two-for-one stock split. At this stage, Anixter was operating 38 warehouses in the United States, 9 in Canada, 3 in the United Kingdom, and 1 in the Netherlands.

COMPANY PERSPECTIVES

Since 1957, weve been leveraging our core strengths as a value-added distributor in order to better serve established and new markets. We are committed to providing innovative and reliable products and services, technical leadership and support, and an everexpanding global footprint.

In the early 1980s Anixter expanded into the fastgrowing data cabling market. Another major opportunity arose in early 1984 when American Telephone & Telegraph Company (AT&T) was split up by court order, benefiting Anixter in a number of ways. Regional telephone companies that had been required to buy equipment from AT&Ts Western Electric Company could now turn to distributors such as Anixter, which began selling to all seven of the so-called Baby Bells. It also formed a joint venture with Cincinnati Bell Inc. to distribute telecommunications products. Moreover, Anixter aggressively hired phone company personnel and beefed up its computer systems, a process that actually started in the early 1970s to manage its own distribution centers, and began managing inventories for some of the Baby Bells, thus laying the groundwork for the companys supply chain service offerings. In 1985 Anixter was already using its computer system to analyze a clients purchasing patterns and help cut inventory costs. As a result of these changes, Alan Anixter told American Metal Market in 1985, We dont refer to ourselves as distributors. We call ourselves supply specialists.

ITEL ACQUIRES ANIXTER: 1986

In 1985 Anixter made changes in its management to demonstrate to investors that it had grown beyond the family business category. Alan Anixter, now 64, turned over the presidency to John A. Pigott, the companys vice-president of administration. Anixter became chairman, a newly created position. His brother William and son James were also elected vice chairman, and more nonfamily members were named to the board. As it turned out, family involvement in the company was about to be eliminated entirely.

In November 1986 Itel Corporation, a Samuel Zellcontrolled company with interests in dredging and cargo container rail car leasing, agreed to acquire Anixter for $14 a share, or roughly $500. The Anixter family also agreed to sell its combined 19 percent stake for that share price.

Zell was the only son of Polish Jews who fled their native country just before it was invaded by German forces in 1939. The couple emigrated to Chicago where Zell was born in 1941. After graduating high school in 1959, Zell went to college as a political science major at the University of Michigan where he began to manage some off-campus housing properties. He used the profits to go into the real estate business with his close friend and fraternity brother Robert Lurie. They continued to run their fledgling real estate business in Ann Arbor even as they went on to law school at the University of Michigan. Zell had always intended to practice law and upon graduation accepted a position with a Chicago law firm. Unhappy with the drudgery of drafting contracts he began to put together real estate deals that attracted even the firms partners as investors.

In 1968 he quit the practice of law and again joined forces with Lurie to pursue real estate ventures. Zell focused on acquiring properties from distressed developers, earning him the enduring moniker of the Grave Dancer. In time he applied the same principles in buying companies. Moreover, because he believed real estate values were spiraling out of control and a crash was inevitable, he decided the time was right in the early 1980s to diversify into other areas. One of his investments was Itel Corporation.

Itel was incorporated in 1967 as SSI Computer Corporation in San Francisco, one of a number of small vendors who bought IBM computers to lease. When that did not pan out, Itel tried manufacturing its own high technology equipment, then converted itself into a business and financial services company that concentrated on lease underwriting, data processing, and ship container leasing. The company did well for a while but by the start of the 1980s fell on hard times and in 1981 filed for bankruptcy protection. When the company emerged from bankruptcy Zell began buying shares of Itel until he gained controlled. Once in charge he engineered the Itel acquisition of a marine-dredging business, Great Lakes International, Inc. His next major deal was Anixter, the purchase of which was something of an aberration for the Grave Dancer, since it was a thriving enterprise, was hardly distressed, and did not come cheap. Zell paid almost three times Anixters book value and 23 times its earnings.

After Itel acquired Anixter, the Anixter family remained involved with the business for a while. Alan Anixter, who had completed about 40 acquisitions over three decades while at the helm, stayed on as chairman of the Itel unit for two years. Later he and his sons launched another wire and cable distribution company called A-Z Industries, which then split into a pair of companies, Anicom Inc. to handle industrial products and A-Z Industries to distribute fiber optics and other more sophisticated products. Anicom was to be an illfated venture, however. In the summer of 2000 the company disclosed it would have to investigate accounting irregularities in earlier financial statements. The company then went out of business in early 2001, and Anixter acquired much of Anicoms inventory and operating assets. Later Anicom executives were charged with fraudulently inflating profits through the use of phony sales. Several of them pleaded guilty. Alan Anixters son, Scott, was also indicted but did not stand trial because the 57-year-old was in treatment for a severe form of lymphoma.

KEY DATES

1957:
Company founded as Anixter Brothers Inc.
1975:
Anixter listed on New York Stock Exchange.
1986:
Itel Corporation acquires company.
1995:
Itel changes name to Anixter International Inc.
1998:
Divestiture begins on Network integration assets.
2002:
Headquarters moved to Glenview, Illinois.

As a part of Itel, Anixter expanded its global imprint to keep pace with rapidly expanding clients, launching operations in Europe in 1986. It then entered the Mexico market in 1991, Australia the following year, and spread to Eastern Europe and the Asia-Pacific region in 1993. Anixter entered South America in 1994. By 1995 Anixter was generating $2.2 billion in annual sales for its parent company and had become its main business. Throughout the first half of the 1990s Itel steadily shed unrelated assets until finally they were all disposed of in 1995 and Itel Corporation was renamed Anixter International.

The money realized from the sale of noncore assets was used at first to pay down debt and later to repurchase shares. With its balance sheet in order, Anixter began investing in capital improvements to position the company for the next stage in its growth. By 1997 Anixter was focused on two areas, value-added distribution and network integration, markets that were expected to have strong, long-term growth. At the end of the year sales topped $2.8 million and net income improved to $45.3 million.

The company then took a step back, recognizing that its two segments were growing in different directions and would not provide much in the way of synergy. Hence, the Europe Network Integration division was sold in 1998, followed a year later by the divestiture of the North American and Asian integration divisions as well. At the same time, Anixter looked to expand its OEM customer base, especially in the Northeast United States, by acquiring Pacer Electronics, a Massachusetts electrical and data-cabling products distributor.

In the short term Anixter experienced a sharp decline in revenues, but managements decision to focus on the value-added distribution segment soon began to bear fruit. The company was able to reduce its corporate staff, which helped to improve margins, so that in 1999 Anixter netted $47.2 million on less than $2.7 billion in sales. Then, in 2000, the company posted record revenues of more than $3.5 billion and net income of $84 million. The economy took a turn for the worse and many customers tightened their belts and postponed some projects, adversely impacting Anixters fortunes for the next several quarters. However, the company was strong and able to weather the storm without too much pain, although the loss of business did cost about 1,000 people their jobs.

By the end of 2003, Anixter, which had moved its headquarters to Glenview the previous year, was able to detect the first signs that clients were ready to resume investing in capital projects. Indeed, sales improved from $2.6 billion in 2003 to nearly $3.3 billion in 2004, and net income increased from $41.9 million to $73.6 million. Anixter was also able to spur growth through acquisitions, picking up three distributors of fasteners: California-based Pentacon, Inc., and a pair of United Kingdom-based companies, Walters Hexagon Group Ltd. and Infast Group plc. With these companies in the fold, Anixter achieved record results in 2005, posting sales of $3.8 billion and net income of $90 million.

Anixter completed two more acquisitions in 2006, adding IMS, Inc., a Connecticut wire and cable distributor to OEM and electronic manufacturing services companies primarily located in the Northeast and Middle Atlantic states; and MFU Holding S.p.A, an Italian fastener distributor. Anixter completed another record year in 2006, netting $209.3 million on sales of $4.9 billion.

Ed Dinger

PRINCIPAL SUBSIDIARIES

Anixter Inc.; Accu-Tech Enterprises, Inc.; Anixter Pentacon Inc.; Infast Group plc.

PRINCIPAL COMPETITORS

Consolidated Electrical Distributors, Inc.; Graybar Electric Company, Inc.; WESCO International, Inc.

FURTHER READING

Anixter Bros. Enjoys Profitable Niche in Jobbing Wire and Cable, Barrons, May 19, 1975, p. 33.

Anixter: Simply Filling a Need, Financial World, February 1, 1980, p. 32.

Collier, Andrew, Anixter Bros. Now the Specialist in Supply, American Metal Market, June 18, 1985, p. 5.

Curtis, Carol E., Buy by the Mile, Sell by the Foot, Forbes, May 24, 1982, p. 66.

Gordon, Mitchell, Itel Earnings Are Likely to Hit Fifth Straight Peak, Barrons, November 21, 1977, p. 39.

_____, What Slump? Barrons, March 9, 1981, p. 46.

Gruber, William, Itel to Purchase Anixters Bros, Chicago Tribune, November 21, 1986.

Itel Rebuilds on Leasings Ruins, Business Week, February 23, 1974, p. 110.

Kotlowitz, Alex, Itel to Acquire Anixter Bros. for $510 Million, Wall Street Journal, November 21, 1986, p. 1.

OConnor, Matt, Anixter Anticipates Inventory of Success, Chicago Tribune, July 22, 1985.

Opdyke, Jeff D., Zell Riding High on Anixter Investment, Wall Street Journal, August 10, 2000, p. 1.

Skokie Firm Sells Wire to World, Chicago Tribune, May 17, 1975, p. A7.