CommScope Inc. (www.commscope.com) says its pending purchase of Avaya Inc.'s (www.avaya.com) Connectivty Solutions business will help it expand its reach beyond North America, opening up doors in the global community.
"We have technology to bring to the table, and they have outstanding technology, so there will be synergies," says Phil Armstrong, vice president of investor relations and corporate communications for CommScope. "We will build on the strengths that they have."
Until now, CommScope (Hickory, NC) has manufactured cables, but not cable components. The company manufactures broadband coaxial cable for hybrid fiber coaxial applications.
Connectivity Solutions manufactures structured cabling for businesses and telecommunications service providers. Its products include SYSTIMAX structured cabling solutions for enterprises, ExchangeMAX structured cable and apparatus for telecommunications service providers, and integrated cabinet solutions.
Armstrong says Connectivity Solutions will bring important global customers to CommScope, including a platform in China that will help CommScope reach out to customers in the Pacific Rim.
CommScope is particularly interested in building on the strengths of the SYSTIMAX solution, which "is a clear world leader, and CommScope will work with its current connectivity partners," says Armstrong.
If the sale goes through, CommScope will face the decision of how to handle the approximately 2,000 people who now work for Connectivity Solutions. Connectivity Solutions' manufacturing facilities are in Omaha, NE, Bray, Ireland and Brisbane, Australia. The business has administrative offices in Richardson, TX. As part of the agreement, CommScope will assume Connectivity Solutions' leases and purchase its facilities, including its factory in Omaha.
Armstrong says CommScope does not have plans to make immediate changes in the manufacturing centers. "We will evaluate and manage all costs," says Armstrong.
Avaya, meanwhile, sees the recent sale as an important step toward entering what it believes will be a high-growth Internet Protocol (IP) telephony market. Avaya announced in February 2002 that it was exploring alternatives for the Connectivity Solutions business. Renaldo Juanso, director of public relations for Avaya, says the company believes the connectivity business no longer fits with Avaya's strategy.
"The company made a decision to focus on its Internet Protocol telephone services, so connectivity is now outside of the scope of our core business," says Juanso.
But he says this doesn't mean that Avaya wants to retreat completely from the structured cabling market for voice/data; rather, its focus will begin to shift.
"Avaya was, and to a degree still is, involved in the PBX industry, maintenance, cabling and other technologies that are now slower growth areas," says Juanso. "The company has made a decision to focus on higher growth markets, so we are quickly evolving into the Internet Protocol technology."
Juanso says the Connectivity Solutions business has been evolving from the time that it was spun out from Lucent Technologies (www.lucent.com), based in Murray Hill, NJ, in late 2000. This evolution has translated into profits, he says, with Connectivity Solutions just finishing "a solid fiscal year."
Don Peterson, chairman and CEO of Avaya, says Connectivity Solutions finished the last quarter with an increase in revenues and its third straight quarter of positive operating income. Avaya says Connectivity Solutions had fiscal 2003 sales of approximately $542 million and operating income of approximately $3 million.
According to the recent sales agreement, Avaya will receive a purchase price of $263 million for the sale. This consists of approximately $210 million in cash, a convertible note payable in the amount of $18 million, and CommScope common stock having a current value of $34.9 million. Additionally, under the terms of the agreement, CommScope will assume up to $75 million of certain specified liabilities primarily related to employee matters. The transaction is expected to close within 90 days.
