Japanese electronics components and digital storage products maker TDK Corp yesterday said it had signed an agreement to acquire German electronic parts manufacturer Epcos AG in a friendly all-cash deal for up to $1.9 billion, which it said it would finance through a bridge loan.

"The purpose of the agreement is to combine EPCOS with TDK's activities in the electronic components field," TDK said in a statement.

The companis say the outlook for the meged entity is very promising given that the components activities of TDK and EPCOS barely overlap and complement each other very well. That holds true technologically as well as with respect to the industries served and the geographical footprint of both parties. Combining the components businesses will enable both companies to concentrate more intensely on strengthening competitiveness and enhancing enterprise value.

'The combination will create an industry-leading global player,'' said Gerhard Pegam, president and CEO of EPCOS.

As a first step, TDK will launch a public tender offer for all outstanding shares of EPCOS and will offer EPCOS' shareholders EUR 17.85 in cash per share, representing a 52 per cent premium over the three-months average closing share price on the Frankfurt Stock Exchange (Xetra) prior to the date of this announcement and a 29 per cent premium over the closing price on 30 July 2008.

Based on the number of EPCOS shares outstanding, this offer would value EPCOS at approx. EUR 1.2 billion equity value. Including net financial liabilities, pension obligations and minority interests this implies an enterprise value for EPCOS of approx. EUR 1.4 billion. TDK currently holds 2.5 per cent of the current registered share capital of EPCOS and has secured delivery of a further 7 per cent.

The offer document is expected to be published after approval by the German Federal Financial Supervisory Authority (BaFin - Bundesanstalt für Finanzdienstleistungsaufsicht) during August 2008. The offer is subject to certain conditions, including a 50 per cent plus one share minimum acceptance threshold on a fully diluted basis, and regulatory approvals. TDK expects the offer to close by October.

Following the successful completion of the public tender offer, TDK will immediately begin the process of carving out its relevant passive components business. The objective is to combine this business with EPCOS' business under a new company, provisionally named TDK EP Components KK. This corporate separation is subject to the approval of TDK's general shareholders' meeting.

The board of directors of the new company will consist of three representatives from TDK and two representatives from EPCOS and will oversee the management of the combined passive components businesses of TDK and EPCOS.

The new company would continue to use TDK and EPCOS brands will continue to be used in the future.

''With the signing of the BCA, we are pleased to have reached an important milestone on the road to a promising joint future,'' said Takehiro Kamigama, president and COO of TDK. ''The customers, employees and shareholders of both companies will benefit from the combination of these two outstanding components companies which have decided to conduct their future business in the spirit of a merger of equals. Our very attractive offer presents full and immediate value to the shareholders of EPCOS.''

''TDK is one of the world's most successful components companies and is an excellent partner for us,'' explained Klaus Ziegler, chairman of EPCOS' supervisory board, hcih has supported the acquisition. ''With this strategy-oriented and financially strong majority shareholder, our company will noticeably gain standing and create an especially solid basis for future success.''

''TDK is well established primarily in Asia, the largest growth region, as well as in all application areas, particularly in consumer electronics and IT,'' noted Takehiro Kamigama, President and COO of TDK. ''The especially strong position of EPCOS in Europe in the growth markets of automotive and industrial electronics and its global importance in mobile communications constitute an excellent fit. In addition, we expect synergy effects in R&D, purchasing and sales. Overall, the highly complementary nature of the businesses will create attractive opportunities for the employees and customers of both groups.''

TDK is looking forward to joining forces with management team and employees of EPCOS who will bring their highly valued commitment, experience and creativity into the partnership and work together with TDK for a successful future.

Listed on the Tokyo Stock Exchange, the New York Stock Exchange and the London Stock Exchange, TDK was established in 1935 to commercialise "ferrite", a key material in electronics and magnetic products, TDK's current product line includes ferrite materials, electronic components, wireless computer networking products, magnetic heads for HDD, and advanced digital recording media.

EPCOS (EPCGn.DE) is a leading manufacturer of electronic components, modules and systems headquartered in Munich, Germany. With its broad portfolio EPCOS offers a comprehensive range of products from a single source and focuses on fast-growing and technologically demanding markets, in particular in the areas of information and communication technology, as well as automotive, industrial and consumer electronics. The EPCOS Group has design and manufacturing locations and sales offices in Europe, Asia, and in North and South America.

Electronic components are found in every electrical and electronic product and are indispensable for their flawless operation. Products from EPCOS store electrical energy, filter frequencies, and protect against overvoltage and overcurrent.

In fiscal 2007 (October 1, 2006, to September 30, 2007), EPCOS posted sales of EUR 1.44 billion. At the end of the fiscal year, the company employed about 18,300 people worldwide.

EPCOS Sales by industries 2007	%
Automotive electronics	29%
Information and communication technology	22%
Industrial electronics	22%
Distribution	15%
Consumer electronics	12%
EPCOS Sales by regions 2007	%
Germany	35%
Europe without Germany	29%
Asia	26%
NAFTA	6%
Others	4%