Happy Days! ADC Buys the FONS
The answer of course, is "Yes." But it didn't.
Instead, it is buying FTTx vendor Fiber Optic Network Solutions Corp. (FONS) for $172 million in cash (see ADC to Buy FONS and FONS Intros FTTP Solution). The deal is set to close in the next 90 days.
In return it gets a growing FTTx equipment business with estimated 2005 sales of $95 million that will bolster its outside plant portfolio as it challenges Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA), which now owns AFC, for major fiber access contracts. (See Analysts See Tellabs Win at BellSouth, Tellabs & AFC: Together at Last!, FTTP Gives ADC a Boost, Verizon Expands FTTP Plan, and Verizon Doubles FTTP Supply List.)
FONS is already a supplier to Verizon Communications Inc. (NYSE: VZ) for that carrier's extensive FTTx project, though most of its customers are smaller players (see Verizon Names FTTP Suppliers). ADC believes it can capitalize on FONS's product capabilities with its own more extensive sales channels in 150 countries. (See Capitol Uses FONS Gear, FONS Names FTTx Customer, and Cinergy Picks FON's FTTP Gear.)
The deal also means Happy Days indeed for FONS's two investors, Oak Investment Partners and Morgenthaler, which have backed the optical component vendor to the tune of $42.5 million. Supersize milkshakes all 'round, then.
ADC says combining the two firms' product lines will more than double its FTTx outside plant sales, which will comprise more than 10 percent of the vendor's annual renenues. In fiscal 2004 (ended October 31) ADC reported revenues of $784 million.
Merrill Lynch & Co. Inc. analyst Tal Liani believes this is a positive move for ADC, given that the FTTx market is growing rapidly. He believes a combined ADC/FONS has between 50 and 60 percent of Verizon's ongoing FTTx business. In a research note issued this morning he notes that the acquisition is expected to add 1 cent to ADC earnings per share in fiscal 2005 and between 5 and 10 cents per share in the 2006 financial year.
As a result, Liani has raised his target price for ADC's stock to $28 from $26.50. ADC's share price closed Thursday at $24.65.
Richie Cunningham was unavailable for comment.
— Ray Le Maistre, International News Editor, Light Reading