CommScope to Buy Andrew for $2.6B

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For the second time in less than one year, CommScope is angling to acquire larger rival Andrew in a deal worth about $2.6 billion, delivering what the companies said will be a global powerhouse in last-mile solutions.

The deal -- which the companies said was unanimously approved by their respective boards -- would combine two of cable's largest communications-infrastructure suppliers.

CommScope tried to buy Andrew last year with an unsolicited bid worth $1.5 billion -- an offer Andrew rejected in August as "wholly inadequate." That came after a bid by ADC Telecommunications for Andrew in May 2006 in an all-stock deal initially valued at around $2 billion, but after ADC's share price fell, Andrew ended up breaking off that agreement.

Under the terms of CommScope's new acquisition offer, CommScope will acquire all outstanding shares of Andrew for $15 each, at least 90% in cash. The bid is about 16% higher than Andrew's closing share price Tuesday.

CommScope is one of the world's largest manufacturers of coaxial cable for hybrid fiber-coaxial networks, as well as cabinets for fiber-to-the-node applications, among other products. The company, based in Hickory, N.C., has about 4,550 employees.

Andrew, founded in 1937, is also a major supplier of coaxial cabling and related radio-frequency-transmission systems. Westchester, Ill.-based Andrew has about 11,800 employees.

"By combining CommScope and Andrew, we are enhancing CommScope's position as a worldwide leader in 'last-mile' solutions," CommScope CEO Frank Drendel said in announcing the deal. "Combining our innovative technologies, premier brands and a top-tier customer base, we will expand our global service model and create an enhanced offering of communications-infrastructure solutions that addresses a broader spectrum of customer needs."

The combined company -- which would have had combined sales of around $3.8 billion in 2006 -- will sell wireless-antenna and cable products, carrier and network solutions, enterprise products and broadband/cable-TV solutions. CommScope and Andrew together will have more than 2,200 global patents and pending patent applications, with a total of approximately 16,000 employees in 130 countries.

The companies see opportunities for cost reductions. The combined company expects to generate pretax cost savings of approximately $90 million-$100 million in the second full year after the transaction is completed, with about $50 million-$60 million expected to be achieved in the first full year after completion.

Cost savings are expected to come from "procurement savings, rationalization of duplicate locations, streamlining overhead and integration of infrastructure," CommScope said, in addition to "building upon best practices in technology and manufacturing." Transition cash costs are expected to total approximately $70 million-$80 million in the first two years after completion.

After the deal closes, CommScope expects to operate Andrew as a wholly owned subsidiary. Drendel will remain chairman and CEO of CommScope, and CommScope will retain its global headquarters in Hickory. The combined company also plans to maintain a presence in the Chicago area, and CommScope said it will build on Andrew's manufacturing and office facility in Joliet, Ill.

To help pay for the deal, CommScope said it obtained fully underwritten debt-financing-commitment letters from Bank of America and Wachovia Bank.

CommScope said it expects the transaction to be accretive to cash earnings per share (excluding special items) in the first full year after closing. The companies expect the deal to close by the end of 2007, subject to regulatory approvals and other closing conditions.

Separately Wednesday, CommScope raised financial guidance for the second quarter of 2007, projecting revenue to be $500 million-$510 million. Previously, it expected revenue of $490 million-$510 million.

Excluding special items CommScope now expects its operating margin for the second quarter of 2007 to be 15%-16%, compared with 14.5%-15.5% previously. The company cited cost reductions, favorable market conditions and increased demand for bandwidth for driving up operating margin.

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