Tyco Snaps Up ADC for $1.25B

Tyco Electronics Ltd. (NYSE: TEL) took the networking world by surprise this morning with its $1.25 billion acquisition of broadband networking technology specialist ADC (Nasdaq: ADCT), which, Tyco hopes, will give it a key role in the ongoing global upgrade of communications networks in the coming years. (See Tyco to Buy ADC.)

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

digits 12/5/2012 | 4:30:05 PM
re: Tyco Snaps Up ADC for $1.25B

If this deal goes through, Tyco Electronics will have a very firm hold on the non-sexy bits and pieces that all network builders need, and that looks like a very neat position to have!

paolo.franzoi 12/5/2012 | 4:30:05 PM
re: Tyco Snaps Up ADC for $1.25B

Its funny I always used to argue the real money was in the nuts and bolts.  The product margins are about the same as say a DSLAM, there is not much in terms of R&D, and the risks are very low.  Much better business model right now than building a ROADM or an optical component.



digits 12/5/2012 | 4:30:04 PM
re: Tyco Snaps Up ADC for $1.25B

How about if some of the vendors just started to sell nuts? I wonder what the margins are there?

After all, Jimmy Carter was never short of a dollar or two....


I don't think bolts would 'bring it' quite the same...

paolo.franzoi 12/5/2012 | 4:30:04 PM
re: Tyco Snaps Up ADC for $1.25B

I thought LR had cornered the market on nuts (see Phil Harvey).



steady 12/5/2012 | 4:29:49 PM
re: Tyco Snaps Up ADC for $1.25B

I think the problem of nuts'n'bolts business is that except the manufacturing jobs in China it doesn't provide many vacancies in USA.

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