According to a press release, the acquisition is designed to provide four key benefits to ADC. These are: to accelerate ADC's growth potential in China; to expand the company's product offerings; to add additional low-cost manufacturing facilities in China; and "to provide a price and feature competitive product offering for effectively competing in the high-growth, developing markets."
ADC 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.
Century Man Communication had sales of approximately US $40 million in the 12 months ending September 30, 2007.
Robert E. Switz, president and CEO of ADC, comments, "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. 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 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. This acquisition fits well with our strategy for capturing the strong potential of faster growing geographies outside the United States, as well as becoming more cost efficient in order to increase profitability. 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. 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. Dan will become general manager of ADC Century Man Communication China.
According to ADC, 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 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 amongst carrier and OEM customers.
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. 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.