Moody’s might lower Avnet

Moody's Investors Service said it placed the ratings of Avnet, Inc. on review for downgrade upon the company's announcement that it will sell its technology solutions business for $2.6 billion in cash and equity to Tech Data Corp.

Although Avnet will receive a premium valuation for the technology solutions unit, it is also in process of acquiring U.K. distributor Premier Farnell for total consideration of about $1.2 billion, including repayment of Premier Farnell debt. The company has not disclosed the ultimate use of the cash proceeds of the technology solutions sale, which could be used for debt reduction, share buybacks or more acquisitions.

Moody’s said the company has struggled to stabilize its technology solutions business and its decision to sell the unit highlights the effect that secular shifts in IT spending are having on companies exposed to traditional hardware and solutions sales.

In any event, Avnet’s business will now be more concentrated around its electronics marketing unit, which is more exposed to the volatility of semi-conductor cycles and will lose the broader diversification provided by technology solutions distribution, the agency explained.

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