NOVEMBER 13, 2007 -- ADC (search for ADC) today announced an agreement to acquire Century Man Communication, provider of communication distribution frame equipment in China, for $55 million in cash at close.
ADC says the acquisition is designed to provide four key benefits: (1) to accelerate its growth potential in China, (2) to expand its product offerings, (3) to add additional low-cost manufacturing facilities in China, and (4) to provide a price- and feature-competitive product offering for effectively competing in the high-growth, developing markets. ADC believes the addition of Century Man Communication moves it closer to its long-term goal of being the leading global provider of network infrastructure equipment. Century Man Communication had sales of approximately $40 million in the 12 months ending September 30, 2007.
Century Man Communication's products portfolio includes communication distribution frames (i.e., Optical Distribution Frames (ODF), Main Distribution Frames (MDF), Building Distribution Frames (BDF), Power Distribution Frames (PDF) and other Hybrid Distribution Frames); related accessories (e.g., fiber connectors and cabinets); wireless network products; and other network products.
"Century Man Communication strengthens ADC's presence in China with telecommunications service providers, including most of the major operators and original equipment manufacturers that are in China already or relocating manufacturing to China," reports Robert E. Switz, president and CEO of ADC. "The strategic value of this acquisition is created by accelerating ADC's growth potential in the China connectivity market, as well as providing ADC with additional products designed to meet the needs of developing countries in the other strong growth markets outside of China. Developing countries in Asia, Eastern Europe, Africa, and Latin America are important to ADC," he says, "as they are investing in communications infrastructure due to significant demand for communications services. In many cases, these developing countries do not need the same product feature sets and capabilities required in developed markets."
Switz notes that the acquisition fits well with ADC's strategy to target faster growing geographies outside the United States. "Acquiring Century Man Communication gives ADC a dramatically expanded presence in the China connectivity segment, while complementing ADC's existing base of manufacturing assets within the country," he contends. "The acquisition is expected to be non-dilutive to earnings per share, excluding acquisition-related charges and acquired intangibles amortization in the first two fiscal years of operation, post close, and accretive thereafter."
"I am excited for the opportunity to combine the operations of Century Man Communication and ADC and strengthen the expansion of our markets to serve our important Chinese and developing market customers with a full range of broadband connectivity solutions," adds Mr. Yuan Dan, president and CEO of Century Man Communication. "ADC's strong financial and market position, significant intellectual property portfolio, and global reach of sales into more than 130 countries when combined with Century Man Communication's strong market position within China will create a company with the resources, distribution, and support to make our offerings the best solutions for our customers worldwide."
On closing the acquisition, Mr. Yuan Dan will become general manager of ADC Century Man Communication China.
Summary of acquisition agreement
ADC has agreed to acquire Century Man Communication for $55 million in cash, at close, plus contingent cash payments of up to $15 million during the 36 months following the close of the transaction, based on meeting agreed upon financial performance metrics. The transaction is expected to close during the next 30 to 60 days, subject to customary closing conditions.
As is customary, after closing the transaction ADC expects to take a charge for various acquisition-related expenses, the amount of which has not been determined. Inclusive of potential intangible amortization and non-recurring and/or non-operating acquisition-related charges, the transaction is expected to be dilutive to GAAP earnings per share in the first year or two of operations following the close of the transaction. Excluding these charges, ADC expects the acquisition to be non-dilutive to diluted earnings per share from continuing operations in fiscal 2008 and 2009, and accretive to diluted earnings per share from continuing operations thereafter. As discussed below, actual results will be subject to many risks and uncertainties.
Based on industry analysts' estimates and ADC's own proprietary market research, ADC believes that China's communications infrastructure market's growth potential is significant:
• Century Man Communication is estimated to hold a number two position within the growing domestic Chinese distribution frame connectivity infrastructure market.
• The distribution frame market is expected to grow at an estimated compound annual growth (CAGR) rate of approximately 8% per year through 2010, driven largely by demand for outside plant Optical fiber Distribution Frame (ODF) and Digital Distribution Frame (DDF) products.
• Acceleration of 3G and fiber-to-the-X (FTTX) deployments in China are expected to drive spending growth on Hybrid and Optical Distribution Frames in the range of 30% compounded annually through 2010, as enterprise and outside plant demand drive future capital spending trends among carrier and OEM customers.
Many of the Chinese telecom service providers and operators, including China Mobile, China Telecom, China Netcom, China Unicom, and China Railway are major Century Man Communication customers, as well as original equipment manufacturers, such as ZTE and UT STARCOM. Century Man Communication says its strong domestic market position, established manufacturing base and customer relationships, and dedicated team of professionals will continue to lead the growth of broadband connectivity infrastructure within the Chinese market. The combination of ADC and Century Man Communication will provide global customers with enhanced product offerings from the central office, through the outside plant, and to customer premises, say Century Man representatives.