Tyco Gets Into the Data Fastlane With a Deal for ADC


When it comes to video and Internet access, consumers want high quality at high speed. And they want this anytime, anywhere and on any device.

Some may say we have become spoiled. But for businesses like Tyco Electronics (TEL), this is a large market opportunity.

This week, the company agreed to pay $1.25 billion or $12.75 per share for ADC (ADCT), a provider of wired and wireless broadband equipment and services. This comes to a nice 44% premium above yesterday's closing price of $8.85. However, the price tag is still well below the levels of a couple years ago, when ADC's stock was trading over $17.

A Look at ADC

The origins of ADC go back to the Great Depression. The founder was an engineer, Ralph Allison, who created a device to test hearing, called the audiometer. From there, he continued to innovate and add new electronic devices to the company's product line.

In the 1970s ADC entered the telecom market by offering sophisticated test equipment. And business exploded during the early 1980s when the federal government broke up the AT&T (T) monopoly.

Not resting on its laurels, ADC made yet another key transition during the 1990s, developing equipment for broadband services. As a result of this investment, the company now powers next-generation technologies like WiMAX, 3G and 4G applications.

As a testament to its success, ADC has customers in more than 130 countries and has annual sales of roughly $1.15 billion. The base covers telecom, wireless, cable and enterprise network providers. And besides developing high-end equipment, ADC also has a global services division.

The Impact

To deal with the recession, ADC took major steps to lower operating costs. Some of the moves included a workforce reduction, facility consolidation and the relocation of resources into lower cost locations.

But now it looks like the market environment is starting to improve, with strength in all the segments for ADC. More importantly, the long-term looks promising as the the appetite for broadband continues to grow.

The Tyco-ADC deal is expected to be accretive by $0.14 per share in the first full-year after the closing (when excluding acquisition-related costs). It will certainly be a nice fit in Tyco's network solution business, which has massive scale, with about $10 billion in revenues.

What's more, Tyco also reported its preliminary results for Q3, which exceeded expectations. Sales are expected to increase by 23% to $3.1 billion, with earnings of $0.70 per share. The consensus forecast was for $.063 per share on $3.04 billion in revenues.