Confirming rumours of a deal, TE Connectivity has agreed to sell its broadband network business unit to CommScope for $3.0 billion (€2.64 billion).
The networks business, one of the company’s four divisions, includes TE's telecom, enterprise networks and wireless operations.
Together these businesses generated $1.9 billion of revenue in fiscal 2014, consisting of $1.1 billion from the telecom business, $627 million from enterprise, and $164 million from wireless.
The sale does not include TE's subsea communications or data communications businesses, which also report into TE's networks division.
CommScope, which makes cable television equipment, enterprise and data centre infrastructure, and wireless products, says the acquisition will help it enter attractive adjacent markets such as wireline telecom and fibre-to-the-x (FTTx).
The company believes that TE’s fibre technology will put it in a better position to address the transition from copper to fibre, as optical fibre is deployed deeper into networks and data centres.
Commscope will also pick up approximately 7000 patents and expand the geographic market that it serves, while making estimated annual cost savings of $150 million from the third year following the close of the transaction.
‘This is an important and transformative acquisition for CommScope, bringing together complementary geographic and customer coverage, products and technologies for the benefit of our stockholders, customers and employees,’ said Eddie Edwards, CommScope president and CEO. ‘This transaction has many clear strategic and financial benefits for all of our stakeholders. It creates enhanced scale with a combined, diversified portfolio that we believe is well-positioned to take advantage of opportunities in the marketplace.’
TE’s telecoms business forms the largest part of the deal. This includes the fibre-optic and copper connectivity products deployed in the outside plant of a telecom or a cable network - everything in the path from the cable head end or a telecom central office through the network to the consumer’s house or to a node close to the house.
The enterprise business includes structured cabling for the enterprise or in the data centre, and the wireless business is what TE describes as a relatively small, ‘niche’ distributed antenna systems business.
All of the digital antenna business came to TE when it purchased ADC Telecommunications back in 2010. About 20 per cent of the enterprise business came from ADC and a little over half of the telecom business came from ADC, according to Tom Lynch, TE Connectivity chairman and CEO.
For TE, the sale means a greater focus on the connectivity and sensor markets, which are expected to account for approximately 90 per cent of TE's product portfolio after the sale.
‘Our decision to sell our broadband network solutions business reflects our strategy to continue focusing on and expanding our leadership position in the attractive connectivity and sensor markets, with particular emphasis on harsh environment applications,’ said Lynch.
He believes these markets represent a $165 billion opportunity for TE, with strong growth rates and attractive profit margins driven by the global trends of a safer, smarter, greener and more connected world. As billions of devices, objects and people become part of the Internet of Things, products based on TE technology will sense, connect and transmit the data being created.
TE also revealed plans to combine its consumer devices and datacom business units. 'The customers we serve in these businesses are converging and much of the underlying technology and products are quite similar,' said Lynch.
TE intends to use the majority of the proceeds from the sale for share repurchase, but wants to keep some flexibility to make strategic acquisitions, according to Lynch. The transaction is expected to close by the end of the year.