There’s nothing like a good corporate takeover to get the market’s pulse racing – and dump money into investors’ portfolios in the process.The latest case of buyout-driven gains comes from ADC Telecommunications(ADCT: 12.52 +0.02 +0.16%), which shot up by over 40% on July 13 on news that Tyco Electronics (TEL: 25.30 -0.24 -0.94%) will buy the company.
Founded in 1935 by Ralph Allison in the basement of his Minneapolis home, ADC is a well-established provider of broadband network solutions.
Allison’s first product was the audiometer – an electronic device the engineer developed to test hearing. From there, ADC’s product line expanded to suit the needs of a growing broadcast industry before ultimately finding its place in telecommunications.
Today, the company’s world headquarters sits just a half-hour drive from that Minneapolis basement – in Eden Prairie, Minnesota. It provides fiber-optic cable used by telecommunications industry leaders like AT&T (T: 24.66 -0.34 -1.36%),Verizon (VZ: 26.7071 -0.0929 -0.35%), Sprint Nextel (S: 4.665 -0.035 -0.74%), T-Mobile and many others.
Out With Copper… In With Fiber Optics
As network demands increase daily (a new study suggests that global IP traffic will quadruple by 2014), the older copper wire systems just aren’t cutting it. So companies throughout America and China are turning to ADC’s faster fiber-optic lines to get them up to speed. In addition, the company is making a name for itself as a leading provider of in-building wireless coverage.
And Tyco has noticed. In a strong move to expand its global presence, the Swiss fiber-optic cable provider has acquired ADC for $1.25 billion, or $12.75 per share – a 44% premium to ADC’s July 12 closing price. Tyco projects that the acquisition will add $0.14 per share to its earnings in the first full year.
With customers throughout Europe and India, Tyco already has enough undersea cable in place to circle the earth more than 10 times. The company also provides electronic connectors for automobiles, computer systems and industrial machinery, as well as other physical network components.
The market loved the news, with investors sending ADC shares up a staggering 41% on July 13 – catapulting it to the top of the day’s gainers. And while Tyco only saw a modest 3.8% gain, expect the momentum to continue. The well-timed acquisition will make Tyco a formidable networking giant, with an impressive wealth of industry knowledge and resources.
In recent years, we’ve gone from having no knowledge of things like “3G” to demanding that our network providers give us 4G. And with new smart phones, PDAs and other gizmos becoming standard issue, there’s a real push for networks to not only be omnipresent, but lightning fast as well. Tyco’s purchase of ADC will certainly help to facilitate that.And since switching to fiber-optic lines is the only way to keep ahead of the curve, demand for Tyco’s products will continue to grow in the coming years.
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