Tyco Electronics to Acquire ADC Telecommunications

Tyco Electronics Ltd., the world’s biggest maker of electronic connectors, agreed to buy ADC Telecommunications Inc. for $1.24 billion to add broadband equipment that helps companies and consumers connect to the Web.

Tyco Electronics will pay $12.75 a share, or 44 percent more than Eden Prairie, Minnesota-based ADC’s closing stock price yesterday, according to a statement today. The purchase will bolster Tyco Electronics’ profit by 14 cents a share in the first year, the Schaffhausen, Switzerland-based company said.

The acquisition will boost Tyco Electronics’ presence in the network-equipment business with products that provide connections to the Internet. It also will add sales in the U.S. and China, where ADC has a greater presence, and as broadband networks proliferate worldwide.

“It makes them one of the bigger, leading global providers of broadband connectivity,” said Amit Daryanani, an analyst with RBC Capital Markets in New York. “It basically doubles the size they have in the network-solutions business.”

Tyco Electronics, whose network-operations competitors include CommScope Inc. and 3M Co., climbed 64 cents, or 2.5 percent, to $25.92 at 4 p.m. in New York Stock Exchange composite trading. ADC rose $3.67, or 41 percent, to $12.52 in Nasdaq Stock Market trading.

Access, Distribution

The purchase of ADC would be the largest for Tyco Electronics since it was spun off from Tyco International Ltd. in 2007.

Before expanding into telecom networks, Tyco Electronics focused primarily on connectors used in cars and appliances, Chief Executive Officer Thomas Lynch said today in a phone interview. ADC has a telecom-based heritage, he said.

ADC’s products include connectors for fiber-optic cables at facilities that route data and traffic for phone companies and Internet providers. ADC’s customers include Verizon Communications Inc. and AT&T Inc.

“Their strength is in the core of the network, where all the information or intelligence is being distributed,” Lynch said. “Our strength is more in the access part of the network.”

Lynch, who plans more acquisitions, said he’ll focus on expanding existing operations. The company won’t see another “transformational” acquisition of this size for at least another year, he said.

In addition to the cash for ADC’s shares, Tyco Electronics will award ADC employees equity valued at about $64 million and exclude $50 million of net cash from the transaction, said Dawn Dover, a spokeswoman for Tyco Electronics.

Third-Quarter Results

The company reported preliminary fiscal third-quarter adjusted profit of 70 cents a share today. Analysts predicted 63 cents, the average of 11 estimates compiled by Bloomberg. Sales for the quarter that ended June 25 were about $3.1 billion, up 23 percent from a year ago. Tyco Electronics expects to report complete results on July 22.

Barclays Plc and law firm Davis Polk and Wardwell advised Tyco Electronics on the deal. Morgan Stanley advised ADC and Dorsey & Whitney served as the legal advisers.

ADC Chief Executive Officer Robert Switz, 63, has said the company will report sales growth in the second half of this year as phone companies invest in a new generation of network technology and add capacity to wireless networks.

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