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Adtran, ADVA to pursue merger amid fiber upswing

Adtran on Monday announced a plan to merge with Germany's ADVA in a transaction worth around $930 million. The companies said the move would allow them to take advantage of a push among American and European lawmakers and providers to build expansive fiber networks.

"We are in the early stages of an unprecedented investment cycle in fiber connectivity, especially in the US and Europe, fueled by the demand for last-mile fiber access and middle-mile transport to provide high-speed connectivity to homes, businesses and future 5G infrastructure," said Adtran CEO Thomas Stanton in a release. "By joining forces, our combined firm's portfolio will better position us to capitalize on this highly compelling global opportunity."

Adtran, based in Huntsville, Alabama, supplies much of the basic hardware for telecom networks, including fiber-based networks. ADVA meanwhile, offers products in metro wavelength division multiplexing, data center interconnect, business ethernet and network synchronization.

The combination of the two companies – in a transaction supported by ADVA's board and biggest shareholder – would hold the Adtran name and would remain based in Huntsville, with a European headquarters in Munich. Adtran's Stanton would be CEO of the combined company.

The companies said they expect the merger to close in the second or third quarter of next year.

However, as MarketPlace noted, Adtran's stock tumbled 14% on the news Monday morning to around $20 per share, from around $24 per share last week. Potentially in response, the law firm Halper Sadeh said it would investigate the terms of the merger. "The investigation concerns whether Adtran and its board violated the federal securities laws and/or breached their fiduciary duties to shareholders by failing to, among other things: (1) obtain the best possible consideration for Adtran shareholders; and (2) disclose all material information necessary for Adtran shareholders to adequately assess and value the merger consideration," the firm wrote in a release.

Nonetheless, some analysts expressed optimism about the merger. "The transaction validates our thesis that scale increasingly matters in data infrastructure," wrote the analysts at Raymond James in a note to investors Monday, following the merger announcement. "Although we see strategic logic for Adtran and ADVA, we do not envision material risk to the competitors we follow including Ciena, Infinera and Nokia. We believe Adtran can obtain the targeted cost synergies, but we are less confident in sales synergies, which management hinted at, but did not quantify."

The analysts also noted that Adtran's relationships with US operators could open the door for ADVA to penetrate the Western hemisphere.

More broadly, other analysts were upbeat on Adtran's fortunes due to increased demand for fiber networks following a pandemic that forced many to work and school online from home. Already, a number of US fiber providers have embarked on expansive new buildouts, including AT&T, Consolidated Communications and Windstream.

On the regulatory front, the situation has spurred government investments into broadband infrastructure, often with a preference on fiber. For example, in the US, Congress is slowly but surely moving to pass up to $65 billion in funding for broadband networks and services.

"2022 should be positive for sales," argued the analysts at WestPark Capital in a note to investors earlier this month, following the release of Adtran's second quarter results.

The WestPark Capital analysts pointed out that Adtran stands to gain ground in part from government broadband funding, as well as moves by some American and European network operators away from China's Huawei.

The Raymond James analysts concurred on the Huawei opportunity. "We believe that the Huawei backlash outside of China presents among the largest opportunities," they wrote Monday.

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Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano

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