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ADC buyout speculation appears to be just that
After Wednesday's HP-3Com deal was announced, rumor mills saw the Eden Prairie telecom as ripe for a takeover. Not so, it seems.
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Is ADC Telecommunications a possible buyout target? Analysts -- and the company's stock price -- say no.
Hewlett-Packard's $2.7 billion deal to buy 3Com, a provider of computer network equipment, provoked speculation this week about whether Eden Prairie-based ADC or another telecom company could be next.
TV stock analyst Jim Cramer wrote in his blog Thursday that the Hewlett-3Com deal was "a wake-up call to all of the inexpensive tech stocks that are languishing," including ADC, because "your time of non-independence will soon be upon you."
The market appeared to disagree: ADC stock closed Friday at $6.77 a share, up just 9 cents since the 3Com deal was announced -- not the behavior of a stock that is "in play."
Analysts who follow ADC, which sells connectivity equipment to landline and wireless phone companies, said it has little in common with 3Com, which makes switching equipment for high-speed data networks.
"Cramer's view was based on pure speculation about merger and acquisition candidates," said Jim Kelleher, an analyst at Argus Research in New York City. "But ADC has not really drawn that kind of interest, and I don't see ADC in the same league of merger and acquisition targets as 3Com. ADC is not the sort of company that would enable a Hewlett-Packard or an IBM to further their network switching operations."
Kelleher has a "hold" rating on ADC shares.
ADC's overnight celebrity got a dash of cold water Friday, when UBS Securities of New York lowered its earnings forecast because ADC "is likely to face some challenges through 2011."
UBS analyst Nikos Theodosopoulos cited, in part, an expected slowdown in construction of fiber-optic networks by ADC's major customer, Verizon, one of the nation's largest wired phone companies and part owner of the Verizon Wireless cell phone network.
Theodosopoulos maintained his "neutral" rating on the stock.
ADC spokesman Mike Smith also said that 3Com and ADC have little in common.
"We've said for many years that there will be consolidation in the telecommunications industry because its telephone industry customers have consolidated," Smith said. "But we're not a peer of 3Com, and we don't consider their business to be like ours." ADC reports earnings Thursday.
Steve Alexander • 612-673-4553
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