ADC and Andrew Corporation merge

Details: Alec Barton; Category: Wireless Networks; 04 June 2006; 10989 views

ADC and Andrew Corporation, two companies well established in emerging markets, have announced that they are merging, creating a global player in wireline and wireless network infrastructure solutions. Developing Telecoms assesses the implications of the merger...

The ADC Andrew Corporation merger looks like ti will put ADC firmly in control of the combined group. The merger has been approved by both boards of directors but is subject to shareholder and regulatory approvals. The name of the combined company will be ADC Andrew.

As both companies have been trading worldwide for many years (ADC in 140 countries, Andrew in 35) Developing Telecoms is recording in detail this pooling of resources which has many implications for the emerging markets, not least as global economies of scale are in place to expand earnings. A summary of the strengths identified by the new company, e.g., sales for the last year of US$3.3 billion, is followed by a breakdown of financial and physical restructuring implications.

So what are the opportunities?

Well, the wireline and wireless markets for next-generation broadband, video, data and voice services are rapidly expanding and have strong growth potential. Carriers in every part of the world are upgrading their networks to expand high-speed data and video offerings. These trends are believed to hold significant promise for the strategic combination of ADC and Andrew.

President and CEO of the combined company will be Robert E Switz, currently in the same roles for ADC. Andrew's President and CEO Robert Faison will serve as a consultant to the combined company to facilitate the transition.

As a combined company, ADC and Andrew are intended to become a leading player in wireline and wireless infrastructure solutions, with a strong global market presence and customer relationships. The strengths of the combined company in its executives' opinions include:

broad-based connectivity solutions for copper, coaxial, fibre, radio frequency, broadcast and enterprise networks, combined with broad-based wireless solutions for antennae, cable products, base station subsystems, in-building/distributed coverage, geolocation systems and satellite communications;
approximately US$3.3 billion in sales (on a pro forma basis for the trailing twelve months) into more than 140 countries comprising around 23% to wireline customers, 44% to wireless customers, 6% to enterprise customers, 24% to original equipment manufacturers (OEM) and 3% to other customers. The combined customer base currently includes nearly all major wireline and wireless service providers in the world, as well as many of the world's largest communications OEMs, as well as large corporate, government and education enterprises;
geographic sales distribution (again on a pro forma basis for the trailing twelve months) of approximately 53% in the United States and Canada, 29% in EMEA, 11% in Asia-Pacific and 7% in Latin America;
roughly 20,000 employees worldwide of whom some 37% are in the United States and Canada , 22% are in EMEA, 25% are in Asia-Pacific and 16% in Latin America ;
facilities around the world including locations in 35 countries; and
strong R&D and a significant portfolio of US and foreign patents on wireline and wireless infrastructure solutions.

The financial and administrative aspects

The strategic business combination is structured as a stock-for-stock merger - with Andrew becoming a wholly-owned subsidiary of ADC. The transaction is expected to qualify as a tax-free reorganisation. Under the terms of the agreement, Andrew shareholders will receive 0.57 of an ADC common share for each common share of Andrew they hold. Upon completion of the transaction, ADC shareholders will own approximately 56% of the combined company and Andrew shareholders approximately 44%. ADC will assume all debt of Andrew and Andrew's convertible notes will become convertible into ADC shares.

Robert Switz is ambitious: "We are committed to moving forward quickly and aggressively after closing to combine our operations and integrate our corporate cultures. We will be focused on capturing the full benefits of this combination for our customers, shareholders and employees."

Post closing, the transaction is expected to be non-dilutive to earnings per share in the first year of the combined company and accretive thereafter, excluding purchase accounting adjustments and other acquisition-related expenses. ADC and Andrew have estimated that synergies will generate additional annual pre-tax earnings of US$70 million-US$80 million in the third year after closing the transaction.

The combined company will be based at ADC's world HQ in Minnesota , with ADC's John A Blanchard continuing as non-executive chairman. The board of directors will be composed of 12 members of whom eight will be current ADC directors, including Messrs Blanchard and Switz, and four will be current Andrew directors. Key members of the management team from both companies will comprise the management team of the combined company after closing.

"Ralph and I have a shared vision of the value that can be derived from combining these two great companies," added Mr Switz. "Ralph has made significant contributions to Andrew and to making the proposed merger a possibility. ADC's employees and I look forward to working with Andrew's employees and Ralph to achieve success in this strategic combination."

Assuming there is no significant delay in obtaining the required approvals, i.e., customary regulatory and governmental reviews in the USA and elsewhere, as well as shareholder approval from both companies, the transaction is expected to be completed in four to six months. Until the merger is completed, both companies will continue to operate their businesses independently.

More info: