Saagar Govil, chief executive of Cemtrex Inc., on Sept. 23,...

Saagar Govil, chief executive of Cemtrex Inc., on Sept. 23, 2015. Credit: Heather Walsh

Cemtrex Inc., a Farmingdale company whose market capitalization is about $31 million, Monday unveiled what it called the “first step” in an effort to acquire a much larger company.

Cemtrex is going after Key Tronic Corp., a Spokane Valley, Washington, company with more than double its market capitalization and more than four times its 2016 revenue.

Comparing workforces reveals an even wider gap. As of July 2016, Key Tronic reported having 4,947 employees, while Cemtrex said it had 577 full-time employees in December 2016. Both publicly traded companies provide services for electronics manufacturers.

Cemtrex is offering to exchange “each outstanding share of common stock of Key Tronic for one share of Cemtrex common stock.”

Cemtrex shares gained 4 percent to close Tuesday at $3.12, but the stock gave back most of those gains in after-hours trading. Key Tronic stock, meanwhile, closed Tuesday unchanged at $7.01 and showed no movement after hours.

“This exchange offer is the first step in Cemtrex’s plan to acquire all of the outstanding shares of Key Tronic, which may not be completed through this offering and may be accomplished through one or more transactions following this offering,” Cemtrex said in a news release.

Calls seeking comment from Key Tronic were not returned.

In a government filing, Cemtrex said over the past five years it has “delivered solid returns for its stockholders while Key Tronic has failed to realize much stockholder value at all.”

Cemtrex said it generated net income of $5 million in its last fiscal year, almost as much as Key Tronic’s $5.6 million, and earnings per share 7 cents higher than Key Tronic’s 51 cents per share.

“For these reasons, the difference in the stock prices of the two companies should not be the primary basis for assessing each company’s inherent value,” Cemtrex said.

But an investment professional voiced skepticism about the prospects for the Cemtrex bid.

“The deal doesn’t make sense to me,” said Mitchell Goldberg, president of Melville-based advisory firm ClientFirst Strategy Inc. “I can’t imagine any Key Tronic shareholders” exchanging a stock priced at about $7 for a stock priced at about $3.

He said Cemtrex could be trying to drive down the stock price of Key Tronic to narrow the price gap and make a deal more likely.

If Cemtrex turned to the debt market it also could have difficulty borrowing sufficient funds to buy Key Tronic, Goldberg said. “They would have to borrow more than the entire market capitalization of the company,” he said.

More than 40 percent of Cemtrex common stock is owned by chairman and chief executive Saagar Govil and his father, executive director Aron Govil, who owns Ducon Technologies Inc., a Farmingdale air pollution control company.

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