ADC announced an agreement to acquire Fiber Optic Network Solutions (FONS) Corp. (www.fons.com), a leading manufacturer of high-performance passive optical components and fiber-optic cable packaging, distribution, and connectivity solutions. The acquisition is designed to further enhance and add scale to ADC's existing line of fiber-to-the-x (FTTX) solutions in a fast-growing market and to support ADC's long-term goal of being the leading global provider of global network infrastructure solutions. A privately held company financed by two rounds of venture investing and owned by Oak Investment Partners, Morgenthaler Partners, and its employees, FONS has approximately 60 employees worldwide and estimated 2005 sales of $95 million. In addition to its corporate headquarters in Marlboro, Massachusetts, FONS has strategic partnerships and outsourcing relationships in countries including Mexico, Ireland, Japan, and China.
"FONS is a high-quality connectivity business that fits well with our strategy for capturing the strong growth potential of the FTTX market, which is in the early stages of its growth curve," said Robert E. Switz, president and CEO of ADC. "This acquisition more than doubles our FTTX outside plant business to greater than 10 percent of total ADC sales. Also, it is expected to be accretive to earnings per share, excluding acquisition-related charges, acquired intangibles amortization and FONS employee retention payments. The strategic value of this acquisition is created from combining ADC's global scale, worldwide customer base and distribution channels, and innovations in connectivity with FONS' advancements in fiber connectivity solutions."
Switz continued, "We remain focused on being a leader in global communications network infrastructure solutions and the FONS acquisition is a great addition to our existing organic growth initiatives in fiber connectivity, Ethernet, wireless and enterprise solutions. FONS also brings additional scale and capabilities to our growing fiber connectivity business to help us meet the needs of our customers as they roll out their important initiatives in this area. Ultimately, our customers benefit from ADC's commitment to the development of a strategic portfolio consisting of fiber connectivity solutions designed for the central office all the way through the outside plant to customer premises."
"I am excited at this opportunity to merge FONS and ADC together to lead the advancement of FTTX solutions for communications operators worldwide," said Michael J. Noonan, president and CEO of FONS. "With ADC's strong financial and market position, solid intellectual property, and global reach of sales into more than 150 countries, coupled with FONS's fiber connectivity advancements, the combined entities will have the resources, distribution and support to make our FTTX offerings the best available solutions for our customers." On closing the acquisition, Mr. Noonan will become Vice President of Business Development in ADC's Global Connectivity Solutions business.
ADC has agreed to acquire FONS for payments of $172 million in cash, net of any FONS debt at the time of closing. This amount is inclusive of a retention bonus pool that will be paid to most of FONS's current employees. The transaction is expected to close during the next 30 to 90 days. Closing of the transaction is subject to approval by necessary regulatory authorities as well as customary closing conditions. After closing the transaction, ADC expects to take a charge for various acquisition-related expenses, the amount of which has not been determined. Excluding the charge, amortization of acquired intangibles, and scheduled payments of a FONS employee retention pool, ADC expects the acquisition to be around $0.00-$0.01 accretive, depending on when the transaction closes, to diluted earnings per share from continuing operations in the remainder of fiscal 2005 and around $0.05-$0.10 accretive to diluted earnings per share from continuing operations in fiscal 2006.
Based on industry analysts' estimates and ADC's own proprietary market research, ADC believes that the FTTX market's growth potential is significant around the world. This research indicates the following estimates:
* In the United States, FTTX networks are expected to pass more than 4.5 million homes by the end of 2005. It is estimated that by year-end 2008, FTTX networks will pass more than 29 million homes and that $1.5-3.5 billion will be spent annually by telecommunications service providers during the next five years as FTTX networks are deployed in the United States.
* Internationally, FTTX networks are expected to pass more than 10 million homes by the end of 2005, and it is estimated that by year-end 2008 more than 60 million homes will be passed by FTTX networks.