Eden Prairie-based ADC Communications is being acquired by a Swiss electronics company.
Tyco Electronics announced plans Tuesday to buy the broadband equipment maker in a deal valued at $1.24 billion.
The deal surprised many analysts, and the fate of ADC's 1,000 jobs in Minnesota is unclear.
ADC makes the equipment, like connectors for fiber-optic cables, that's used by the telecommunications industry to transmit communications for phone companies and Internet providers.
"So basically the way I think of ADC is that it's a plumbing company," said ," says Blair King, an analyst who covers broadband infrastructure with Avondale Partners in Nashville. "It's the cabling infrastructure that hooks up the electronics in the network to facilitate internet service, voice service and video service for the public and companies.
Tyco's acquisition of ADC will help it provide broadband access to networks around the world. It also will add sales in the U.S. and China, where ADC has a stronger presence.
King and other analysts were surprised to hear that ADC was an acquisition target. King said that in 2009, ADC started to pull out of the economic downturn ready to gain market share, and revenues were starting to bounce back after having trended down.
"Things had really turned for them," he said. "ADC has been a staple company for so long, under various economic cycles, that I never really considered them as a company that would be acquired; I would've considered them as being acquisitive on their own."
A spokesman for ADC, Mike Smith, said the company's CEO did lament that they're not the ones doing the acquiring. Smith said the company always had its eyes on partnering with or snapping up other companies, which it has done in the past.
"Certainly ADC being acquired was always on the table, too, due to the fact that it is a consolidating industry" Smith said. "As you know in the United States, for example, AT&T and Verizon dominate the marketplace, so there needs to be vendor consolidation, too, to keep pace with that."
Smith said ADC workers might find new opportunities with Tyco, but there is the potential for workforce reductions in Minnesota and in ADC's global workforce. The company employs about 300 Minnesotans at its headquarters in Eden Prairie and another 700 people at a manufacturing plant in Shakopee.
Smith said the fate of those jobs under Tyco is unclear.
Lawrence Harris, a telecommunications equipment analyst with CL King in New York, said Tyco hasn't gotten specific about cost-cutting actions.
"But I do think you will see some," Harris said. "Tyco has indicated that they have identified about $100 million in cost savings, about 50 percent that will occur in the first twelve months. Some are at the factory level; some are in the operating expense category, which of course could affect office employees at some point." If the deal wins regulatory approval, it's not just jobs that are on the line, but also the legacy of a Minnesota headquarters. ADC got its start in a Minneapolis basement in 1935; its first product was a device used to test hearing. It grew to be a publicly traded company with locations around the world.
Bill Blazar with the Minnesota Chamber of Commerce said ADC has been an important part of the state's business community.
"Nobody should underestimate the significance of having the CEO, and the CFO, and the research and intellectual brain trust of a company in a community, that tends to bring a lot of other good things along with it," Blazar said.
Blazar said that's not just in terms of whom the company employs directly with good paying jobs, but also the transactions that they do with other businesses in the Twin Cities and the state of Minnesota.
In the past few years, the Twin Cities have lost a few locally headquartered companies like Northwest Airlines and Travelers. Blazar said with another loss looming, he'll be more alert in watching for up and coming companies that could fill the gaps.
Meanwhile, Blazar said he'll also reach out to Tyco Electronics to make sure they see that Minnesota is a good place to do business so they'll keep strong operations here.
Tyco's acquisition of ADC is expected to close in the fourth quarter.