Why KEMET Corporation Shares Surged Today

By Evan Niu, CFAMarketsFool.com

What happened

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Shares of passive electronic component maker KEMET (NYSE: KEM) have surged today, up by 18% as of 12:15 p.m. EST, after the company announced that it would acquire NEC TOKIN from NEC Corporation.

So what

NEC TOKIN will sell its EMD division and use the proceeds to pay down debt so that NEC can ensure that NEC TOKIN's balance sheet is completely debt free once it is sold to KEMET. KEMET will pay approximately $52.5 million to NEC, plus half of the remaining amount that is in excess of the net cash proceeds from the EMD sale. After paying off what NEC TOKIN owes NEC, which is around $222 million, the remaining proceeds will go to NEC TOKIN and KEMET.

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Now what

In a statement, CEO Per Loof said:

Loof noted that KEMET will have a much stronger balance sheet overall, and combined earnings before interest, taxes, amortization, and depreciation will be much higher. The deal is expected to close on April 10.

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Evan Niu, CFA has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.