27 October 2003 Hickory, NC Lightwave--CommScope, Inc., announced today that it has signed a definitive agreement with Avaya Inc., to acquire its Connectivity Solutions (ACS) business for cash and securities valued at approximately $263 million. ACS is a global leader in the design, development, manufacture and marketing of enterprise structured cabling solutions for LAN applications.
ACS is also a U.S. leader in structured cabling and equipment for telephone central offices, as well as in secure environmental enclosures for telecommunications applications. Enterprise structured cabling systems connect personal computers, workstations, phones, LANs, and other communication devices through buildings or across campuses.
With the addition of the connectivity solutions business, CommScope will be a global leader in the enterprise LAN market. Currently, LAN products represent about 14% of CommScope's total sales. CommScope is the largest manufacturer of broadband coaxial cable for hybrid fiber-coaxial (HFC) applications and a leading provider of fiberoptic cable for HFC.
ACS had revenues for the twelve months ended September 30, 2003 totaling $542 million, according to Avaya's public information, while CommScope had revenues of $555 million for the same period. The strategic acquisition of ACS enhances CommScope's global brand and market presence in the enterprise LAN business. With 2,000 employees worldwide, ACS has a network of manufacturing and distribution facilities in North America, Europe and Asia/Pacific Rim. ACS is recognized as the preeminent brand in structured cabling for LAN solutions, as well as for its technological innovation, particularly with its SYSTIMAX end-to-end connectivity solutions for customers' on-premises voice and data networking needs. Additionally, CommScope's fiberoptic cable technology, enhanced through its relationship with OFS, complements ACS' enterprise LAN product offering.
Under the terms of the agreement, Avaya will receive $210 million in cash, an $18 million convertible subordinated note from CommScope and $34.9 million in CommScope common stock, subject to adjustment. The cash component of the transaction is expected to be funded primarily from CommScope's existing cash balances and through a new $150 million senior secured credit facility underwritten by Wachovia Securities. CommScope had $171 million in cash and cash equivalents on its balance sheet as of September 30, 2003. CommScope will purchase the net assets of ACS, including certain defined current liabilities and assets, which totaled approximately $300 million as of June 30, 2003, based upon Avaya's historical financial statements. CommScope will also assume up to approximately $75 million of other specified liabilities of ACS, primarily related to employee benefits. The transaction, which is subject to customary closing conditions and approval by necessary regulatory authorities, is expected to close within 90 days except with regard to certain international operations.
CommScope expects to incur incremental transition costs of approximately $25 million during the first year of operating the ACS business, primarily related to information technology and other transition services. Excluding acquisition-related and transition costs, CommScope expects the acquisition of ACS to be accretive to earnings per share for calendar year 2004.
Avaya's publicly-reported segment operating income for ACS includes corporate overhead allocations from Avaya primarily related to general and administrative expenses. CommScope believes that it can provide these services to ACS at a lower cost than Avaya's historical corporate allocation.
"ACS is an excellent strategic fit and a logical step in the continued growth and development of CommScope as we execute our last mile strategy," said Frank M. Drendel, chairman and chief executive officer of CommScope. "This transaction represents a unique opportunity to acquire a preeminent industry player at an attractive valuation and establish CommScope as a global leader in the enterprise LAN area. As the recognized leader in data connectivity innovations, ACS has a premier range of products in SYSTIMAX, a successful R&D [research and development] program, talented personnel and extensive global customer relationships."
Drendel continued, "As we move forward, we believe we can further enhance the long-term growth and profitability of the SYSTIMAX product line through renewed focus and commitment to this business. We look forward to working with the talented ACS team."
Wachovia Securities is serving as CommScope's financial advisor on the transaction and Fried, Frank, Harris, Shriver & Jacobson and Robinson, Bradshaw & Hinson are acting as the Company's principal legal advisors.