CommScope pulls trigger on TE Connectivity Broadband Network Solutions buy

Jan. 28, 2015
Confirming a report in the Wall Street Journal, TE Connectivity Ltd. (NYSE: TEL) says it has reached an agreement to sell its Broadband Network Solutions (BNS) business unit to CommScope (NASDAQ: COMM) for $3.0 billion. The unit comprises TE's telecommunications, enterprise networks, and wireless operations.

Confirming a report in the Wall Street Journal, TE Connectivity Ltd. (NYSE: TEL) says it has reached an agreement to sell its Broadband Network Solutions (BNS) business unit to CommScope (NASDAQ: COMM) for $3.0 billion. The unit comprises TE's telecommunications, enterprise networks, and wireless operations.

The sale price represents approximately 10X adjusted EBITDA. The units had revenue of $1.9 billion in fiscal 2014, with $1.1 billion coming from the telecom business, $627 million from enterprise, and $164 million from wireless. TE will retain its subsea communications and data communications businesses, which also report into TE's Network Solutions segment. The two companies expect the sale to close by the end of this year.

CommScope plans to finance the purchase via cash on hand and up to $3 billion of incremental debt. The company says it has received debt financing commitments from J.P. Morgan Securities LLC, BofA Merrill Lynch, Deutsche Bank, and Wells Fargo.

"Our decision to sell our BNS business reflects our strategy to continue focusing on and expanding our leadership position in the attractive connectivity and sensor markets, with particular emphasis on harsh environment applications," said Tom Lynch, TE Connectivity chairman and CEO. "These markets represent a $165 billion opportunity for TE and have strong growth rates and attractive profit levels driven by the global trends of a safer, smarter, greener and more connected world.”

The sale of the BNS unit, coupled with a pair of recent acquisitions, means that approximately 90% of TE's portfolio on the connectivity and sensor markets, and 80% of its revenue will come from serving harsh environment applications. Lynch says the company will use most of the $3 billion for share repurchase. The rest of the funds will go toward "organic investments" as well as future acquisitions.

For its part, CommScope sees the purchase as a means to expand into business areas adjacent to its current activities, particularly wireline broadband and fiber-to-the-x (FTTx). The company already has PON capabilities (see "CommScope launches EPON and GPON product line"), but has mainly focused on the cable MSO market, where it also supplies fiber-optic cable and HFC products. CommScope also expects to leverage its new assets to strengthen its hand outside of North America.

The company foresees the purchase as being more than 20% accretive to adjusted earnings per share by the end of the first full year after closing. CommScope also believes it can achieve more than $150 million in annual synergies beginning in the third year following closing. That figure includes more than $50 million in the first full year.

"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," said Eddie Edwards, CommScope president and CEO. "This transaction has many clear strategic and financial benefits for all of our stakeholders. It creates enhanced scale with a combined, diversified portfolio that we believe is well-positioned to take advantage of opportunities in the marketplace."

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About the Author

Stephen Hardy | Editorial Director and Associate Publisher

Stephen Hardy has covered fiber optics for more than 15 years, and communications and technology for more than 30 years. He is responsible for establishing and executing Lightwave's editorial strategy across its digital magazine, website, newsletters, research and other information products. He has won multiple awards for his writing.

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