ADC Close to OSS Sale
The vendor has decided to focus on broadband access infrastructure, which it bolstered with a recent acquisition, and sell off its software and cable equipment businesses (see ADC Jumps on Krone and ADC Tries Flogging its OSS). The software arm comprises two main product lines, the Singl.eView billing system and the Metrica service assurance system, both of which are used by many large carriers.
In a research note, Morgan Keegan & Company Inc. analyst Simon Leopold says he met with ADC's CEO Bob Switz and CFO Gokul Hemmady to discuss future strategy, including divestitures. Leopold notes that a sale of the Singl.eView business for between $80 million and $100 million should come first, as "following an auction, it seems that the final stages of the deal are in the works."
The analyst expects a "strategic buyer" but rules out Lucent Technologies Inc. (NYSE: LU) and Telcordia Technologies Inc., as well as billing giant Amdocs Ltd. (NYSE: DOX).
The new owner will take on board a business regarded highly by the carrier community. In last year's OSS Market Perception Study by Heavy Reading, ADC was the only company recognized by the majority of network operators as a player in the billing sector. It also came second in the study's product performance and quality/reliability categories, and was ranked a respectable sixth in both the price and service/support categories.
It seems a sale of the Metrica business, which could raise $30 million to $40 million, is less advanced, according to Leopold. He notes that the software, which is used by carriers, particularly mobile operators, to monitor service and network performance, will probably require R&D investment.
Metrica is also well regarded by carriers, as ADC was ranked third overall in the performance monitoring category of the Heavy Reading OSS report, trailing only Hewlett-Packard Co. (NYSE: HPQ) and Lucent.
The sale of ADC's cable system products, including its Cuda cable modem termination systems and the Fastflow provisioning system, is even further away, according to the financial analyst. Leopold, who doesn't put a price on this particular part of ADC's business, says there's no sign of a sale just yet, but believes it "should happen before year end."
The analyst rules out a number of major players as potential buyers, including Cisco Systems Inc. (Nasdaq: CSCO) and Motorola Inc. (NYSE: MOT), and guesses that Harmonic Inc. (Nasdaq: HLIT) might be a possible acquirer.
ADC again declined to comment on any matters related to M&A activity.
Overall, the analyst views the ongoing shift in focus and reorganization at ADC as a positive step that should lead to improved financial performance. Leopold believes ADC's tighter focus on broadband access infrastructure, including fiber-to-the-premises and Ethernet access solutions, coupled with additional sales into the customer base of recently acquired Krone Inc. and management's plan to reorganize ADC around regionally-focused business units should produce positive results.
ADC's share price closed on Friday at $2.80, up 6 cents, valuing the company at $2.26 billion. ADC will announce its second-quarter financial results on May 19.
— Ray Le Maistre, International Editor, Boardwatch