ADC Telecommunications (Nasdaq: ADCT) is snapping up Broadband Access Systems for $2.25 billion, the companies said Wednesday. The move will fortify ADC's position in the market for Internet protocol based service delivery and help it meet the surge in demand for digital subscriber line networks.
Shares in ADC, a supplier of fiber optics, network equipment, software and integration services for broadband networks, closed up 1.06 to 34.88 Tuesday, ahead of the news.
The companies plan to fulfill a surge in demand for high-speed access services over cable modem and Digital Subscriber Line (DSL) networks. While currently directed at the cable market, BAS's technologies may also deliver of IP-based services over ADC's DSL and wireless platforms. According to Dataquest, for the period of 1999 to 2004, North American residential high-speed Internet access subscribers on cable networks are expected to grow at a compound annual growth rate of 53 percent to 16 million, and on DSL networks, they are expected to grow at a compound annual growth rate of 85 percent to 11 million.
ADC will issue shares worth $2.25 billion as par of the all-stock deal. The number of shares to be issued will be based on an average closing price of ADC for the five trading days prior to closing, and it subject to a collar on ADC's stock of $34.127 to $41.711. The number of shares issued will range from 66 million at the low end of the collar range to 54 million at the high end of the collar range.
After closing the transaction, ADC expects to take a undetermined one-time charge. Assuming that the deal closes during ADC's fourth fiscal quarter, and excluding the one-time charge, ADC expects the acquisition to be dilutive by 2 cents a share to its earnings in the fourth quarter. It will also take away from earnings by 7 to 8 cents a share for fiscal 2000 and by 5 to 6 cents in fiscal 2001. The acquisition should add to earnings thereafter, the company said.
The deal is expected to be completed prior to calendar year-end, and is intended to be accounted for as a pooling of interests.