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Happy Days! ADC Buys the FONS

Wouldn't the world be so much more fun if ADC Telecommunications Inc. (Nasdaq: ADCT) had announced this morning that it had acquired Arthur Herbert Fonzarelli, a.k.a. The Fonz, or Fonzie?

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

5514DD 12/5/2012 | 3:07:33 AM
re: Happy Days! ADC Buys the FONS I'm not sure how this acquisition will help ADC compete with Tellabs. ADC makes infrastructure solutions -- physical terminals, passive components, cabinets, splice cases, etc. FONS did the same thing.

Tellabs makes active components -- the line terminal at the CO, and the network terminal at the home.

I think ADC's acquisition of FONS may help them compete against a company like Corning, but not electronics manufacturers like Tellabs or Motorola or Alcatel.
rbkoontz 12/5/2012 | 3:07:32 AM
re: Happy Days! ADC Buys the FONS Yes, ADC and Tellabs/AFC do not compete for any business. It is clear the author knows more about Happy Days reruns than telecom equipment.
5514DD 12/5/2012 | 3:07:31 AM
re: Happy Days! ADC Buys the FONS Hey LR folks, I used to work for Tellabs and also used to engineer FTTP stuff for Verizon. Happy to review any articles for you before publication next time.
Yoda88us 12/5/2012 | 3:07:29 AM
re: Happy Days! ADC Buys the FONS Not only does the article suggest ADC competes with Tellabs, which is does not, it quotes an analyst who can read a press release. "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."

paolo.franzoi 12/5/2012 | 3:07:22 AM
re: Happy Days! ADC Buys the FONS
You have to forgive the International Editor for trying to provide insight on an US acquisition.

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