ANDREW ACQUIRES ALLEN TELECOM

Orland Park, Ill.-based Andrew Corp. set the wheels in motion last week for its third major acquisition in less than a year when the company announced its intent to buy Allen Telecom in a $500 million all-stock transaction.

Andrew acquired U.K.-based Quasar Microwave Technology in April 2002 to round out its terrestrial antenna subsystem product line. Then, with the company's acquisition last June of radio frequency power amplifier company Celiant Corp. for approximately $470 million, Andrew began to restructure its business.

Ralph Faison, then president and CEO of Celiant, became chief operating officer of Andrew and began streamlining and consolidating global facilities. Those actions reduced head count in the company by approximately 800.

Faison was officially appointed CEO of Andrew last week, replacing Floyd English, who had served as CEO since 1983 and is credited with growing Andrew into a global company. English became chairman upon Faison's appointment. Allen Telecom Chairman Philip Colburn and CEO Robert Paul also will join Andrew's board of directors.

The acquisition of Allen Telecom will both grow and streamline the company, Faison said. “Andrew will be stronger, more dynamic and better positioned strategically, technically, operationally and financially,” he said.

The combined company will become the No. 1 global supplier of coaxial cable, power amplifiers, terrestrial microwave antennas, network geolocation solutions, repeaters and in-building solutions. It will also become the No. 2 provider of filters and base station antennas, according to Faison.

The deal is expected to be accretive by the end of the first year after acquisition. The combined pro forma revenue for the 12-month period ending Dec. 31 was $1.3 billion.

Andrew will pay a 21% premium over Allen shares based on its $9.01 per-share price on Feb. 14. Allen shareholders will receive 1.775 shares of newly issued Andrew stock for each share of Allen stock.

Faison said Andrew's wireless service provider and OEM customers will benefit from its new capacity for providing one-stop shopping for all wireless subsystem infrastructure needs. Andrew itself will benefit from what Faison said is lots of room for consolidation of operations on the production and manufacturing side of the business.

“We see substantial opportunity for synergies and cost savings in excess of $40 million annually after integration, coming from new efficiencies in manufacturing, [research and development], sales, purchasing and operations,” Faison said.

To analysts' concern about Celiant's financial exposure from a dearth of diversity in its customer base and a historic reliance on business from Lucent Technologies — which according to Faison was 75% last quarter — Faison said the unit has added five more OEM customers since its acquisition, thereby reducing its amplifier product exposure.

“As we bring Allen into Andrew, the overall exposure to Lucent is significantly reduced again because Allen has a nice base of customers,” Faison said.

Exposure for both customer and supplier has increased as the number of players decreases through consolidation.

“There are fewer companies in the market to do the buying, so therefore it makes sense that there will be fewer companies that will end up selling,” said Andrew Seybold, an industry analyst and head of the Andrew Seybold Group.

Faison said the entire industry is going through a rapid consolidation phase, and this acquisition helps put it in a position of leadership.

“Allen has a number of companies it has acquired itself over the years,” Seybold said. “So it seems a natural progression up the food chain for Andrew now to acquire Allen.”