CommScope, a maker of cable and connectivity systems for service providers, cable operators and enterprises, this week launched a $1.7 billion rival cash bid for wireless equipment vendor Andrew Corp., which three months ago received a $2 billion offer from ADC Telecommunications.
CommScope is offering $9.50 per share in cash for all outstanding Andrew shares, a 36% premium over the $6.97 per share value Andrew’s shareholders would receive under the existing merger conditions from ADC. The value of ADC’s stock fell considerably — from $17.92 on May 31, 2006, the day ADC’s offer for Andrew was announced, to $12.22 on Aug. 4, 2006, the last trading day before CommScope’s bid was made public — taking the value of its offer for Andrew down with it.
That $2 billion initial bid is now worth less than $1.4 billion based on the value of ADC’s stock on Aug. 4.
CommScope’s proposal also represents a premium of approximately 20% over Andrew’s per share closing price of $7.89 on Aug. 4. CommScope anticipates the proposed transaction would close in early 2007.
“We believe that our all-cash proposal is extremely compelling for Andrew shareholders and provides Andrew shareholders superior value over that contemplated by the existing merger agreement with ADC,” said Frank Drendel, CommScope’s chairman and CEO, in a statement. “Under our proposal, Andrew shareholders will receive a substantial cash premium for their shares without the significant uncertainties inherent in ADC’s proposed stock-for-stock merger transaction. We believe that Andrew’s Board of Directors and shareholders will find our all-cash proposal superior to the ADC transaction.
“Andrew is an excellent fit with our portfolio, and provides us with the opportunity to build upon CommScope’s innovative carrier technologies and Andrew’s strong global wireless channel and brand,” Drendel said in the statement.
An Andrew spokesman said the company will evaluate the CommScope offer and would comment “at the appropriate time.” The spokesman did not say when the time would be appropriate, but CommScope’s proposal will expire at 5 p.m., EST, on Aug. 11.
ADC was not immediately available for comment, but analysts believe the company will drop its bid for Andrew.
“If ADC management believes that Andrew is still worth what was originally proposed, they might choose to raise their offer,” said Rich Church, senior telecommunications equipment analyst at investment firm C.E. Unterberg, Towbin, in a research note. “However, we believe that given the drop in ADC’s market value, it would likely be difficult for ADC to match (CommScope’s) offer, as ADC has only $91 million in net cash. A more likely outcome in our view is that ADC walks away from the deal.”
In another research note, Nikos Theodosopoulos of UBS Warburg writes: “Given ADC’s current net cash of only $91 million, ADC would have to raise $1.5 billion-plus to fund the merger. Thus, we do not see ADC making a counter offer for Andrew.”
CommScope expects the combined company to be a leader in last mile infrastructure, including structured cabling for enterprises, broadband cable for HFC applications, and now wireless. Andrew makes satellite communications systems, including antennas, base stations, RF amplifiers and towers.
CommScope also expects to achieve annual cost savings of approximately $30 million to $50 million in the first full year after completion of the transaction and approximately $70 million to $90 million in the second full year after completion.
The transaction would be financed through a combination of cash on hand and debt financing. CommScope has received commitment letters from Bank of America, N.A. and Wachovia Bank, N.A. for the financing of the transaction, which are subject to due diligence and other conditions.
CommScope’s proposal is also subject to completion of a due diligence review of Andrew, as well as other conditions, including approval by Andrew’s board and shareholders, and clearance under the Hart- Scott-Rodino Antitrust Improvements Act.
