Tyco Snaps Up ADC for $1.25B
It's a move that should make ADC's current shareholders quite happy this morning, as the offer values ADC's stock at $12.75, a 44 percent premium over Monday's closing price. In early trading today ADC's share price is up by 41.5 percent to $12.53.
So what's Tyco up to?
Well, it plans to integrate ADC, which sells fixed and wireless access equipment (fiber distribution hubs, splitters, connectors, distributed antenna systems, and so on), into its Network Solutions division. The idea is to create a business that can provide network capacity solutions to network operators and enterprises from the core of the network to the very edge -- in fact, "all the way to the end user." (See ADC Expands Fiber Products for Rural Telcos, ADC Pumps Up DAS, , STC Does In-Building With ADC, and ADC Shows Off at Supercomm.)
Tyco's Network Solutions division, which generates revenues of around $1.7 billion a year, sells a complementary set of products, such as connectors, fiber and copper cabling, racks for copper and fiber networks, and surge arrestors, to network builders. It added to its arsenal recently with the $15 million acquisition of Zarlink's optical line. (See Zarlink Sells Optical Unit to Tyco.)
The ADC acquisition will give it a greater range of products in the fiber and wireless access market, and give Tyco's Network Solutions division a professional services team.
In essence, the acquisition will create a networking nuts-and-bolts business with global reach and annual revenues approaching $3 billion.
The move, says Tyco, will add an estimated $0.14 to its earnings per share in the first full year of ownership (after acquisition-related costs). It will also add more than $1 billion to its revenues at ADC's current run rate. The deal is expected to close before the end of 2010. (See ADC Reports Fiscal Q1.)
Investors like the move, as Tyco Electronics' share price edged up by $1.29, more than 5 percent, to $26.57 this morning, though that positive movement was undoubtedly helped by Tyco's preliminary third-quarter sales numbers of $3.1 billion, slightly ahead of expectations.
Within the broader Tyco Electronics group, Network Solutions sits alongside Tyco Telecommunications , the $1 billion-a-year business that builds subsea networks. (See Tata Picks Tyco for TGN Gulf Cable, Pipe, Tyco Complete Subsea Cable, Tyco Demos Subsea 40G, and Seacom, Tyco Connect East Africa.)
Tyco Electronics, which generates the majority (58 percent in 2009) of its revenues from electronic components, also makes specialist devices for the aerospace, medical, defense, and other vertical markets. See this company snapshot for more.
— Ray Le Maistre, International Managing Editor, Light Reading