Cabling solutions provider, Tyco Electronics, has acquired ADC, a network equipment infrastructure provider, for $12.75 per share in cash or an enterprise value of approximately $1.2 billion. The transaction is expected to increase the share value by approximately $0.14 per share in the first full year after closing, excluding acquisition-related costs.

Tom Lynch, CEO, Tyco Electronics, said, "This is an exciting time for our company and ADC is a great fit as we continue to execute our strategy to create a strong leadership position in all of our connectivity businesses." 

The merger will give the combined entity's customers access to high-speed video and data across devices ranging from smart phones to HD and 3D televisions to PCs with advanced video-conferencing capabilities. Lynch maintained, "The combination of ADC and Tyco Electronics will widen the scope of the combined entity's offerings." 

ADC's Chairman, President and CEO, Robert E Switz, said, "While ADC has been strong in the wired and wireless solutions that have enabled the expansion of advanced broadband networks worldwide, being part of Tyco Electronics would enable us to address the large telecommunications service provider and enterprise markets." 

Tyco will rope in ADC's distributed antenna system (DAS) products, which will enhance its wireless connectivity carrier solutions' capabilities. Besides, Tyco will add ADC’s professional services organization to its business. "We expect ADC to be adding to our earnings in the first year and to reach our target operating margin of 15 per cent in the third year after the acquisition," said Lynch.

The transaction is structured as a tender offer, to be followed as soon as possible by a merger. It is subject to the customary closing conditions, including the tender of a majority of ADC shares and regulatory approvals and is expected to close in the Q4 CY 2010.

However, the spokespeople from Tyco Electronics India and ADC India were unavailable for comment. The cabling industry seems to have a positive outlook about the merger and the players anticipate wider opportunities as there are fewer players now.

DS Nagendra, Country Manager, Nexans found consolidation to be good for the cabling industry. "We would see greater market opportunities now with the competition slightly lessened," said Nagendra.

He expected good synergy between the two companies given that Tyco would be able to leverage carrier space products in the telecommunications category while ADC could leverage Tyco's large accounts. He opined that the partners and in particular the national distributors of Tyco would see newer product offerings and expand their reach, while the system integrators would have a larger basket of products and solutions.

The channel partners expect the consolidation to have a positive impact on their revenues, although it may not be substantial. P Samson, director of Tyco partner, Chennai-based Excelan India, pointed out, "The merger would help us in driving our top line growth and I would easily expect a five to six percent increase in our revenues with ADC coming into the fold."

Exelan which recorded a turnover of Rs 60 crore, finds 60 per cent of its business coming from Tyco solutions. Bangalore-based partner, AVS Networks—which sells networking gear from Tyco, ADC, R&M, Panduit etc—expected the merger to open up greater selling opportunities and a wider customer base.

"With 60 per cent of our business coming from Tyco products and 15 per cent from ADC, I would expect to grow my share with consolidated offerings," said AV Suresh Babu, Director, AVS. 

According to its partners, ADC had made breakthroughs in large accounts such as Cognizant and TCS generating fairly large orders. One of Tyco's Bangalore-based partners, B. Anand Rao, Managing Director of Par Data Systems opined that Tyco would be leveraging ADC's manufacturing strengths and components addressing the telecommunications vertical. "ADC will obviously leverage Tyco's logistic capabilities and customer base of around 800 in the country and its strength in various verticals," said Rao. He easily expected a 40 per cent growth in opportunities with the merger which would translate into significant revenue growth.

According to industry sources, Tyco enjoys nearly 40 per cent market share and the proposed merger may enable the vendor to increase its share. The nearest competitor is Digilink who is trying to grab the runner-up position along with Systimax.

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