ADC hopes to become one of the top players in the cabling market

ADC Telecommunications Inc. made a strategic move when it recently acquired connectivity maker KRONE, opening up the possibility of making a name for itself in the cabling market.

May 1st, 2004

ADC Telecommunications Inc. made a strategic move when it recently acquired connectivity maker KRONE, opening up the possibility of making a name for itself in the cabling market. But some industry observers say the company should keep the KRONE brand name for now while attempting to reassert itself in an industry that it has all but disappeared from in recent years.

Lone Hansen, manager of IT Cabling and Contracting Worldwide Market Intelligence for BSRIA (www.bsria.co.uk), says, "If I were ADC, I would adopt the KRONE brand name. [It] is well known in the market for structured cabling in most countries, whereas ADC is unknown outside the U.S. KRONE has a strong position in some of the largest markets for structured cabling ,such as the U.S., U.K. and Australia."

ADC (www.adc.com) recently announced its agreement to acquire the KRONE Group (www.krone.com), a global supplier of copper- and fiber-based connectivity solutions and cabling products used in public access and enterprise networks. The deal is valued at approximately $350 million, and ADC says that KRONE's sales in 2003 totaled $316 million. ADC expects to close the deal by July 31.

The announcement is the latest in a series of high-profile mergers and acquisitions. CommScope (www.commscope.com) completed the acquisition of the Connectivity Solutions business of Avaya (www.avaya.com), effective as of Jan. 31. Also, Belden Inc. (www.belden.com) announced that it and Cable Design Technologies (CDT) (www.cdtc.com) have formed a "merger of equals." The combined company, with sales of about $1.3 billion, will be called Belden CDT.

ADC Telecommunications sees its pending acquisition of KRONE as a step toward building up its presence in the structured cabling market to the point where it is a market leader.

"You will see more of us in the future," says Pat O'Brien, president of ADC Connectivity (www.adc.com), based in Minnetonka, MN. "We are looking to take a bigger leadership role." In fact, O'Brien says ADC has high hopes of one day replacing one of the top players in the market, and he says the KRONE acquisition is a first step toward that goal.

"We feel there is a place for a viable Number 2, and someone can take on the CommScope SYSTIMAX business," says O'Brien. "That is where we look to be long term."

Despite these aspirations, the brand name question remains up in the air. O'Brien says the company must also now determine its approach to branding products.

"This is an acquisition, and ADC will be the company," says O'Brien. "The brands have a very similar feel for the customer base. We know their strengths, and we will use their brand to our benefit."

But Hansen says ADC faces an uphill battle with the perception that it is a small supplier for structured cabling in the U.S. market. KRONE, meanwhile, has a significant share in some countries, but has a small share globally, at 3% of the market.

It won't be easy for the new ADC to jump to that Number 2 spot, since Tyco Electronics is occupying that space with 7 to 8% of the global market.

Hansen notes, however, that the purchase makes strategic sense for ADC. KRONE has a strong presence in the U.S., the United Kingdom, Australia and Italy, as well as 7% of the share in the Asia Pacific region.

"We are looking to this as a first step," says O'Brien. "We are building a foundation for our business behind a historic core customer base."

Hansen notes that the state of the industry continues to be poor, and that those poor market conditions led to the current spate of mergers.

"If you look at the market value, many regions have decreased 30 to 40% compared to 2000," says Hansen. "Price erosion has been very significant and, of course, that's hurt the industry. And these mergers have taken place in this environment to cut costs."

O'Brien says ADC wants to capitalize on the merger by making a bigger name for itself among the manufacturers who make high-speed data cabling, patch panels, connectors, optical fiber and the like.

He says ADC's next step, once the acquisition is completed, will be to look for cost synergies between the two companies. ADC has not determined if this will lead to layoffs.

"We bring to the table a very strong North American business, with strong customer relationships and ties, and we are looking for opportunities for KRONE's product portfolio to be cross-sold to our customer base," says O'Brien.

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