TE Connectivity to sell TE Subcom to Cerberus Capital Management

TE Connectivity Ltd. (NYSE: TEL) says it has agreed to sell its subsea communications business (TE SubCom) to Cerberus Capital Management, LP, for $325 million in cash. TE expects the deal to close by the end of the first quarter of its fiscal year 2019 (which should occur this December), subject to the usual closing conditions. The company expects to repurchase shares using funds from the transaction.

TE SubCom is a major supplier of submarine network technology and deployment services. It has completed more than 100 submarine cable system deployments and operates eight cable ships. The business has approximately 1,400 employees, according to Cerberus. The unit was among the pioneers in the use of 100-Gbps coherent transmission as well as combining C- and L-Band transmission (see “TE Subcom demos coherent 100G on transatlantic submarine cable system” and “TE SubCom brings C+L optical transmission for submarine networks to production”).

Nevertheless, while TE said the SubCom business was expected to contribute approximately $700 million in sales to fiscal year 2018 results, its contribution to profitability would be “minimal.” Therefore, it appears TE management decided the time was right to seek alternatives.

"The SubCom business is a leader in the undersea telecommunications market, and distinctly different from the rest of TE's connectivity and sensor portfolio. We are pleased that with this transaction we increase our focus as a leading industrial technology company. It strengthens our business model; resulting in a stronger growth profile, reduced cyclicality, higher margins, and a greater return on investment," said TE Connectivity CEO Terrence Curtin. "We appreciate the contributions that the SubCom team has made to our company and toward building a more connected world, and we expect that they will continue that important work in the future with Cerberus."

A private investment firm founded in 1992 and based in New York City, Cerberus Capital Management has more than $35 billion under management. “SubCom is a recognized pioneer in the subsea fiber optic cable industry with a long track record of technology innovation and excellent project management and customer service,” said Michael Sanford, co-head of North American private equity and senior managing director of Cerberus. “The industry-leading solutions and services that SubCom delivers will become even more critical for global companies as demand for data and connectivity continues to grow rapidly. Through this investment, SubCom will become an independent, standalone business that is well-positioned to capitalize on the significant growth opportunities ahead.”

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