CommScope to buy TE Connectivity's Network Solutions unit: WSJ

The Wall Street Journal reported late January 26 that CommScope is on the verge of buying the Network Solutions business unit of TE Connectivity for approximately $3 billion. Neither company has confirmed the story, although TE Connectivity is scheduled to report results of its fiscal first quarter tomorrow, January 28.

TE Connectivity would retain its submarine network business, according to the Journal's story. The rest of the unit develops and markets terminals and connector systems, fiber-optic components and modules, wire and cable products, racks and panels, and products for wireless applications. The entire Networks business garnered $2.9 billion in fiscal 2014, making it third in revenue among the company's four reporting segments.

Like TE Connectivity's Network Solutions business unit, CommScope addresses both the telecom and data center/enterprise markets, although it provides systems-level products in addition to cables and accessories. If the report is true, the acquisition would represent a huge investment on the part of CommScope, in light of the fact that Carlyle Group paid $3.9 billion to acquire all of CommScope in 2011 (see "Carlyle Group to take CommScope private"). This fact has led some analysts to doubt the veracity of the WSJ story.

"Although we believe CommScope management seeks accretive acquisitions to improve growth and diversification, such a deal seems larger than what we might have imagined," wrote Simon Leopold of Raymond James in a note this morning. "In its last quarter, CommScope had $616 million of cash and $2.7 billion of long-term debt; our model forecasts it generating over $400 million of free cash flow in 2015. Although we cannot rule out CommScope's acquiring TE's Network unit, we see this as a large deal with uncertain prospects and imagine smaller accretive deals, even a smaller portion of TE's Networks unit, are more likely for CommScope."

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