WASHINGTON (MarketWatch) — CommScope Inc. on Wednesday agreed to pay $2.6 billion to buy larger rival Andrew Corp., reviving its offer less than a year after an unsolicited acquisition bid was spurned.
Both companies make equipment used by cable-television and telephone carriers, but CommScope
has a stronger presence in the corporate market while Andrew
has a broader global reach.
Pending completion of the deal, the companies plan to reap big savings and provide a more comprehensive set of products to network operators. Phone and cable companies are racing to upgrade their networks to offer a broader range of services — wired, wireless and Internet — to their customers.
“These companies fit so well together there’s very little overlap. We can put a blanket on the ‘last mile,’ ” CommScope Chief Executive Frank Drendel told MarketWatch in an interview. He was referring to the stretch of cable or wireless base stations used to connect home, businesses and mobile customers to a nearby network.
Under the agreement, CommScope will pay $15 for each share of Andrew, 90% of which would be in cash. The offer represents a 16% premium over Andrew’s Tuesday closing price of $12.98.
In Wednesday trading, Andrew stock leaped 11% to $14.42.
Shares of CommScope fell more than 2% to $53.80 in recent action. At the time of its prior offer, CommScope shares traded around $30.
CommScope sought to buy Andrew last year for $1.7 billion in cash and assumed debt. Although the gambit failed, the offer caused ADC Telecommunications Inc.
to terminate its prior agreement to acquire Andrew.
Since the withdrawal of CommScope’s previous offer last August, shares of Andrew have surged more than 60%.
CommScope estimated it could generate annual pretax cost savings of up to $100 million in the second full year after the deal is consummated.
The company plans to eliminate duplicate operations and sell off noncore assets, a strategy that likely includes the sale of Andrew’s small satellite business.
The companies expect the deal to close by the end of 2007. Andrew’s stockholders are guarantee to receive $13.50 a share in cash, with the rest being paid in CommScope stock, cash or some combination.
Although Andrew’s larger in terms of revenue, CommScope is more profitable and growing faster. In 2006, Hickory, N.C.-based CommScope earned $130 million on a 21% increase in revenue to $1.62 billion.
Andrew, based in Westchester, Ill., lost $34.3 million last year even as sales rose 9.4% to $2.15 billion.
Andrew originally agreed to be acquired by ADC in May 2006 for $2 billion in stock, but the value later fell to as little as $1.3 billion after a decline in the price of ADC’s shares. ADC then backed out after CommScope made an unsolicited bid.
Andrew CEO Ralph Faison said the new deal represents a better fit than a merger with ADC because CommScope has a strong position in the corporate-wireless market, an area where Andrew was weak.
After Andrew rejected CommScope’s initial overture last summer, the two companies eventually renewed talks and conducted reviews of each other’s business. The extended discussions eased tensions and paved the way for a deal.
In a move likely to mollify shareholder concerns, CommScope on Wednesday also raised its financial forecast for its second quarter even as it announced the acquisition of Andrew.
For the second quarter, CommScope predicts it will generate $500 million to $510 million in revenue, compared to its prior estimate of $490 million to $510 million. It also upped its forecast for operating margin to 15% to 16% from a previous range of 14.5% to 15.5%.
By contrast, ADC had warned that its quarterly results would not meet expectations shortly after unveiling its deal to acquire Andrew. The ill-timed warning later contributed to the failure of the merger.
CommScope makes coaxial, fiber-optic cable and related products that enable network operators to provide cable, Internet access and phone services over a single line.
Andrew makes an array of products such as antennas, base stations and towers used in the cable, wireless, satellite and phone markets.
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