To: Johnny Canuck who wrote (28332 ) 9/20/2000 10:18:35 AM From: Johnny Canuck Read Replies (1) | Respond to ADC Telecom (ADCT) 34 7/8: ADC Telecom is trading down $2 in the pre-market this morning due to the dilutive effect of its announcement that it is acquiring Broadband Access Systems (BAS), a supplier of next-generation, IP access platforms which allow communications service providers to deliver Internet access and IP-based voice services to consumers and businesses. ADC is paying $2.25 bln in stock for BAS subject to a collar of $34.127-$41.711 which should close by year end. Normally, companies are not so specific as to how dilutive an acquisition will be, but ADC spelled it out here. Assuming the deal closes by Oct 31 (fiscal Q4), it should be $0.02 dilutive in Q4 and $0.07 to $0.08 in fiscal 2000 and $0.05-$0.06 in fiscal 2001 and accretive thereafter. These are some pretty large numbers considering the company is expected to earn only $0.54 and $0.76 in fiscal 2000 and 2001....The deal will bulk up ADC's Broadband Connectivity segment which already represents 58% of sales. This segment has been the crown jewel for the company as sales in the most recent qtr were up 120% yoy. Its other segments are also performing well....Another likely reason the stock is under pressure this morning is that BAS is currently focused at the cable market which may increase the difficulty of achieving synergies with ADC's delivery over DSL and wireless platforms....The stock has been under pressure over the past two months due in part to a weak overall stock market, but there are concerns that telecom companies are planning to reduce cap-ex spending. A good indication that management is bullish on demand is that significant capacity expansions are planned over the next several quarters. Also, Merrill Lynch recently came out with a report that fears of slower cap-ex spending are overblown and that this fear appears every year. Also, in order for U.S. carriers to remain competitive, it's important to continually build out their networks or risk falling behind. As such, capital expenditures should be up 10% over last year....In spite of the dilution, we are very positive on ADC's long term prospects as we are excited about the company's growth prospects particularly with respect to its emerging fiber-optic connectivity/component business where sales are expected to double in fiscal 2001. -- Robert J. Reid, Briefing.com
