Adtran adds Adva in €789 million fibre merger

Adtran and Adva have announced a merger deal designed to help them tap into the growth opportunity in fibre.

The vendors aim to bring together their various fibre market assets – Adtran’s fibre access and connectivity solutions and Adva’s strength in metro wavelength division multiplexing, data centre interconnect, business Ethernet and network synchronisation solutions, essentially – to build some scale in the fibre networking space.

The deal, which gives Adva an equity value of €789 million (US$934 million) and an enterprise value of €759 million, makes a lot of sense. Joining US-based Adtran and German outfit Adva broadens the market opportunity for both and creates cost-synergies estimated at around US$52 million per year. But more importantly, it merges two companies with complementary portfolios in a market positioned for growth.

“We are in the early stages of an unprecedented investment cycle in fibre connectivity, especially in the U.S. and Europe, fuelled by the demand for last-mile fibre access and middle-mile transport to provide high-speed connectivity to homes, businesses and future 5G infrastructure,” said Adtran CEO Thomas Stanton. “By joining forces, our combined firm’s portfolio will better position us to capitalize on this highly compelling global opportunity.”

The companies are keen to position this deal as a merger, but it is clear that Adtran is the ruling party here. Adtran will hold a bigger stake in the resulting merged company and the firms’ decisions around branding, location and staffing underline who is in charge.

The pair have agreed an all-stock exchange offer for 100% of Adva’s outstanding shares, which will leave Adtran shareholders with a stake of around 54% in the merged entity and Adva holders with the remainder, assuming all shares are tendered. The new entity will be known as Adtran Holdings; the Adva name will disappear, which, given its provenance – it stands for ADd VAlue – is no great loss.

The new company will remain in Adtran’s home town of Huntsville, Alabama, but will retain Adva’s base in Munich as its European headquarters. It will be dual-listed on the Nasdaq and in Frankfurt.

Adtran and Adva were keen to point out that the new entity will be led by executives from both companies, both in its management team and at board level, but once again there is an imbalance.

Adtran chairman and chief executive Tom Stanton will keep both positions at the new Adtran, while Adva CEO Brian Protiva will serve as executive vice chairman. Adtran CFO Mike Foliano keeps his job, as does Adva chief technology officer Christoph Glingener. Six of the new Adtran’s board members will be nominated by Adtran and three by Adva.

Subject to the approval of Germany’s Federal Financial Supervisory Authority (BaFin), the public takeover offer will begin in November. The deal requires a 70%-plus take-up rate of Adva’s outstanding shares, majority approval from Adtran’s shareholders, and other regulatory approvals. The Adtran and Adva boards have green-lighted the plan already, while Adva’s largest shareholder – Egora, which holds 13.7% of the firm’s outstanding shares – has pledged to tender its holding.

There could be a spanner in the works, given that law firms Halper Sadeh and WeissLaw have separately announced their intention to investigate the proposed merger on the grounds that it could breach fiduciary duties and other legal requirements. Halper Sadeh is encouraging Adtran shareholders to educate themselves on their legal rights and options; essentially, it seems there is a question mark over whether Adtran shareholders are getting a fair deal.

Adtran and Adva said they expect the deal to close in the second or third quarters of calendar 2022, which gives them some time to iron out any issues.