CommScope to acquire Tyco spinoff TE Connectivity’s network business for $3 bn
29 Jan 2015
US telecom infrastructure provider CommScope Holding Co is buying Swiss electronics major TE Connectivity's network business for approximately $3 billion in an all-cash deal, aiming to reduce the company's reliance on the US market and expand overseas.
The purchase includes TE's telecom, enterprise and wireless businesses but excludes its submarine and data communication assets.
Switzerland-based TE Connectivity, spun off in 2007 from Tyco International, is a world leader in fiber optic connectivity for wireline and wireless networks. It has a strong presence in Europe, the Middle East, Africa and Asia-Pacific regions with annual sales of around $14 billion.
The company's telecom, enterprise and wireless businesses generated revenue of approximately $1.9 billion in its fiscal year ended September 2014.
The acquisition will reinforce CommScope's position as a leading communications infrastructure provider and expand its footprint in Europe, the Middle East, Africa and Asia-Pacific. Currently, the company generates around 55 per cent of its revenue from the US.
CommScope president and chief executive officer Marvin (Eddie Edwards) said, ''This is an important and transformative acquisition for CommScope, bringing together complementary geographic and customer coverage, products and technologies for the benefit of our stockholders, customers and employees.''
''It creates enhanced scale with a combined, diversified portfolio that we believe is well-positioned to take advantage of opportunities in the marketplace,'' he added.
The transaction is expected to be about 20-per cent accretive to CommScope's earnings by the end of the first full year after closing.
CommScope expects annual synergies to the tune of $150 million in the third year through the business combination.
North Carolina-based CommScope provides infrastructure solutions for communication networks worldwide. The company's annual sales are about $3.5 billion and it has around 12,000 employees.
The deal will enable CommScope to expand into the adjacent wire-line telecom networks / fibre-to-the-X (FTTx) market and meet the steadily growing demand for broadband services in developed and emerging markets, the company said.
The acquired business will contribute approximately 10,000 people and 65 facilities to CommScope, in addition to TE's approximately 7,000 patents.
The share of broadband related revenue in the company's overall sales is expected to more than double to 28 per cent through the acquisition, while enterprise business will also improve to 26 per cent from 22 per cent. CommScope's wireless business, which is dominant now with 65 per cent share, will get reduced to 46 per cent.
The transaction, approved by the boards of directors of both companies, is expected to close by the end of 2015 subject to regulatory approvals and other customary closing conditions.
Post-acquisition, the combined entity will be headed by Edwards and his management team.
CommScope intends to fund the deal through cash on hand and up to $3 billion in debt, which it expects to get from JP Morgan Securities LLC, BofA Merrill Lynch, Deutsche Bank and Wells Fargo.
TE said that it plans to use the proceeds from the sale to buy back shares.
Allen & Company LLC, JP Morgan Securities LLC, BofA Merrill Lynch and Deutsche Bank are serving as financial advisors to CommScope on the deal, while TE is advised by Centerview Partners LLC, Goldman Sachs & Co and Citigroup Inc.
Further to the news, shares in CommScope surged over 6 per cent to $27.13 while TE Connectivity rose 4.4 per cent to $67.45 yesterday in New York.
In a separate statement, CommScope said yesterday that the company's revenue would remain flat to down 5 per cent in 2015 due to temporary slowdown in the North American wireless markets, foreign exchange rate fluctuations and pruning of its broadband segment
