Canon to Buy Axis for $2.8 Billion in Move to Video Surveillance

by Grace HuangAdam Ewing

A Canon Inc. digital single lens reflex (DSLR) camera is arranged for a photograph in Tokyo. The company is poised to see a 25 percent gain in profit this year, according to the average analyst estimate compiled by Bloomberg. Photographer: Tomohiro Ohsumi/Bloomberg

(Bloomberg) -- Canon Inc. made a 23.6 billion-krona ($2.8 billion) cash bid to acquire Sweden’s Axis Communications AB, expanding into video surveillance as smartphone competition erodes digital camera sales.
The world’s largest camera maker offered 340 kronor per share, almost 50 percent more than the stock’s closing price Monday in Stockholm, the companies said in statements. Shares of the Lund, Sweden-based company soared to match the offer price, trading at 336.70 kronor as of 11:10 a.m. local time.
Canon is making its largest ever acquisition as improved smartphones lure customers from cameras and the Japanese electronics company tries to diversify into products such as printers. Revenue from camera sales has fallen in the last three fiscal years, while sales of
office products including printers and peripherals have increased.

“This is a good move for Canon,” Kazuyoshi Saito, an analyst with Iwai Cosmo Securities Co., said by phone. “The deal enables the company to not only sell the cameras themselves, but also to have a larger networking service that it can design and operate.”
Shares of Canon rose 1 percent before the announcement to close at 3,771 yen in Tokyo trading.
Axis makes video-surveillance equipment used in casinos and shopping malls. The market for such recording equipment and related video encoders is expected to exceed $20 billion next year, the company said on its Website.

Board Support

“The video surveillance system market has continued to realize rapid growth,” Canon said in a statement. The company said the network surveillance camera business would be a “driving force for future growth within Canon Group.”
The offer price values Axis at 23 times estimated 2015 earnings, according to data compiled by Bloomberg. That compares with China’s Hangzhou Hikvision Digital Technology Co. and Canada’s Avigilon Corp., which are trading at 19 times and 24 times projected earnings, respectively, according to analyst estimates compiled Bloomberg.
Axis’s board has unanimously recommended shareholders to accept the bid. Its three largest shareholders -- Christer Brandberg, Terese Karlsson and Martin Gren, who together hold 39.5 percent of the shares -- have also agreed to sell.
Morgan Stanley is advising Axis, whose board has commissioned an independent valuation report from Deloitte AB.
After the deal is complete, Axis’s management team will remain in place, while its headquarters, development centers and sales offices will remain where they are, Canon said. Axis had more than 1,900 employees at the end of last year.
Canon reported 845 billion yen ($7.1 billion) in cash and near-cash items at the close of the December quarter. The company’s biggest previous deal was the $1.9 billion takeover of Dutch printer-maker Oce NV in 2010.