ADC to Buy Andrew for $2B

Fixed-network systems vendor ADC (Nasdaq: ADCT) is buying its wireless equivalent, Andrew , in a stock deal worth about $2 billion, to create a company that will target carriers looking to build next-generation converged networks. (See ADC, Andrew to Merge.)

Andrew shareholders will get 0.57 ADC shares for each common share they own, with ADC shareholders owning 56 percent of the combined company. Based on ADC's share price of $22.38 at the end of Tuesday, that values Andrew's shares at $12.76, about 30 percent higher than Tuesday's closing price of $9.78, and valuing the company at about $2 billion.

But the news sent ADC's stock down $2.29, more than 10 percent, to $20.09 in pre-market trading this morning, taking the value of the acquisition down with it. Andrew's stock, meanwhile, shot up by $1.47, more than 15 percent, to $11.25 in pre-market trading.

ADC expects the acquisition to close within six months and to be non-dilutive to its earnings in the first year and accretive after that. The companies expect cost savings to be between $70 million and $80 million after three years.

ADC also today announced its second-quarter results, which met analysts' earnings expectations and beat their revenue forecasts. (See ADC Reports Q2.)

Each company specializes in the nuts and bolts of wide-area networks. ADC supplies products such as copper and fiber connectivity components, crossconnects, Ethernet access equipment, outside plant equipment, power systems, and network management and test systems, as well as professional services, mainly to fixed-network operators and cable operators, but also to wireless carriers and enterprises. (See ADC Targets Access, ADC Shows Off at NAB, and ADC Launches FTTX Cables.)

Andrew supplies base-station systems, antennas, transmission towers, RF power amplifiers, network management systems and integration services, and a great deal more, to carriers and vendors such as Nortel Networks Ltd. and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) that need wireless network systems. (See Andrew Debuts TMA for 3G, Andrew Unveils OneBase Macroshelf , and Andrew Unveils Antenna.)

Combined, the two companies have annual revenues of $3.3 billion (based on sales in the past 12 months), of which 44 percent comes from sales to wireless operators, 23 percent to wireline carriers, 24 percent to major equipment manufacturers, and 9 percent to enterprises and others. More than half the sales (53 percent) are in North America, and 29 percent are in EMEA (Europe, Middle East, and Africa).

In its most recent full financial year (to October 31, 2005), ADC posted revenues of $1.17 billion and a net income of $111 million. Andrew posted revenues of $1.96 billion and net income of $38 million in fiscal 2005 that ended September 30, 2005. (See ADC Reports Q4.)

The merged company will have 20,000 employees -- 8,500 from ADC and 11,500 from Andrew. ADC's CEO, Robert Switz, will be president and CEO of the new company, while Andrew's CEO, Ralph Faison, will "serve as a consultant to the combined company to facilitate an efficient transition," the firms announced.

"Together, we're better positioned to assist our customers worldwide and capture growth opportunities that result from the convergence of our customers' next-generation wireless, broadband, video, data and voice services," stated Switz in a prepared statement. "The strategic, operational and financial synergies of our two strong companies create a significant opportunity to grow value for our customers, shareholders and employees."

— Ray Le Maistre, International News Editor, Light Reading

digits 12/5/2012 | 3:52:54 AM
re: ADC to Buy Andrew for $2B It's 11am Eastern, and ADC's stock is down by $4.48, almost 20 percent, to $17.90. Looks like the price was too much for many to swallow.

Switz and Co have some explaining to do....
Infridley 12/5/2012 | 3:52:53 AM
re: ADC to Buy Andrew for $2B The acquisition of Andrew appears to be a great strategic fit to ADC. For years ADC has struggled to access more wireless marketshare with innovative products like Digivance, wireless access points, etc. Andrew gives ADC entree into those markets overnight. With Switz at the helm the combined company will be lean, focused on the bottom line and R&D driven to accommodate customer needs. I like the buy.
paolo.franzoi 12/5/2012 | 3:52:53 AM
re: ADC to Buy Andrew for $2B
I think this probably has to do with 2 factors; the earnings they announced today were not great and they paid a 30% premium for Andrew.

materialgirl 12/5/2012 | 3:52:47 AM
re: ADC to Buy Andrew for $2B I agree. Given the recent announcements by BT, VOD, FT and others, this convergence is what the doctor ordered.
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