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ADC Merger Webcast
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May 31, 2006
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Filed by ADC Telecommunications, Inc.
Pursuant to Rule 425 under the Securities Act of 1933
And Deemed Filed Pursuant to Rule 14a-12
Under the Securities Exchange Act of 1934
Subject Company: Andrew Corporation
Commission File No. 001-14617
The following contains the transcript of a town hall held for employees of ADC Telecommunications,
Inc. on May 31, 2006, hosted by Robert E. Switz, President and CEO of ADC Telecommunications, Inc.
Merger Webcast 5/31/06
Bob Switz; Greetings! Greeting ADC colleagues. It gives me great pleasure and more than just a
little bit of excitement this morning to share with you the announcement that we made this morning
the combination of ADC and Andrew to form what I believe will be the worlds premiere, leading
independent company providing infrastructure solutions to both the wireline and wireless markets.
So for folks that have been around ADC for a period of time just a little step back in history to
put all this in perspective. In 2000 we had peak revenues of around 3.3 billion. And then of
course we went into the industry downturn a little more than, a little less than 3 years ago after
all of our descaling, of all of our cutbacks to get the company back to health. We had business
from continuing operation of about 550 million. And about 2 years later, assuming the close of
this transaction, well have revenues well in excess of 3 billion and very close to, if not more,
than what we had at our peak. So what I would say to all of those on the legacy team, the new
team, the entire ADC team across the globe, this is what youve been working so hard for, for the
past couple of years. We wouldnt be where we are today if it was not for the hard work, the
dedication, the risk-taking by our management team and the efforts put in by employees all around
the world. So if, if Ive asked you to stand up all around the world in applause for making a
quarter, lets stand and have an applause for getting well past 3 billion dollars. (Applause)
For those of you that are sitting there saying, Oh, my God, the hard work is coming. (Laughter) I
told you it would. I said the big one is coming and the big one is here. And I couldnt think of a
better company to partner with as the next building block in transforming ADC to a leading company
and the next generation of telecom equipment suppliers. So assuming everything goes according to
plan and we still have some obstacles to get through in terms of regulatory, shareholder vote,
etc. well be well on to, well underway to transforming the company and having leadership
positions across both parts of the market. So let me, let me move on with the presentation cause
I want to make sure we have adequate time for, for Q&A. And you know Ill spend more or less time
on some of these slides than others but itll give you a little bit of a flavor of what were
entering into.
I gave you that and so just to comment again we need to get past regulatory approvals in the US and
other countries. We need to have a shareholder vote. So there is still a technical side of the
process that we must go through going forward.
This is some of the, the thinking behind the, the great possibilities of the transaction. We
certainly become a world leader in network infrastructure covering both wireline and wireless
solutions. We are buying. We are buying, acquiring, partnering with the worlds leader in
wireless infrastructure. So we havent gone out and partnered with a small company. We havent
partnered with somebody thats number 5 or 10 in the market. Andrew Corporation is, is the leader in, in most of the categories. So and again when we look at
our objectives that youve heard so often about being number 1 and number 2 in our served markets
this very consistent with that strategy. We have chosen to pursue a leader and partner with that
leader.
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I think it gives us a tremendous opportunity to serve our collective customer base. We have some
overlapping customers. We have some different customers. We sell wireline connectivity products
into some of the customers that they sell wireless solutions into. So I think we have a unique
ability, a unique ability to get more from that customer base over time. And if you think about
where the market is going and I believe strongly that in a few years this is what the world will
look like it will really emulate some of what youre seeing in the US. You know AT&T acquiring
Bell South, Cingular, one of the largest wireless carriers is part of Bell South. So under AT&Ts
roof youll have a comprehensive wireline and wireless company. It, its clear that Verizon will
buy the stake in Verizon Wireless that they do not own and that they too will be a wireline and
wireless carrier. I suspect well see other consolidations in the US like that. It would not
surprise me to see a cable company and a wireless company partner. So as I look at the US market,
I dont think of them anymore as wireline customers, wireless customers, or carriers to use another
name. I think theyre just going to be carriers, okay. So the technology, the customer base is,
is converging as we speak. I think well see similar things in Europe. Already Vodophone has
indicated that they are and will be buying some fixed lines to support their wireless business so
they can be both a wireless and wireline carrier in, in the geographies, some of the geographies
that theyre serving.
So when I look at what were doing, I think were leading this change. Well be one of the only
probably the only equipment vendor today that has the ability to serve that converged customer
base with products specifically geared towards, towards assisting both of those types of customers.
So I think thats a very powerful, strategic, long-term advantage that we have. Now can somebody
go out and do something similar? Yes, but today weve been the first mover in that.
Certainly there are huge synergies that come out of the transaction. Some obviously are cost. We
both have enormous supply chain initiatives underway that we can now combine. There certainly will
be some redundancy in some of the support functions. Well have facilities opportunities. Well
have the ability to share to some degree or at least combine and better utilize some of the
manufacturing facilities. We get access, further access into India and China, which are big
markets for us. Where we have little presence Andrew has a lot more. Together well have even
more. So I see a significant opportunity to increase our business over time in those markets.
They also have something going on in Brazil. Were not there. Brazil and other Latin American
markets are have been overshadowed by China and India but theres great promise expected out of
those markets. And I think that will enable us over time to participate in that growth as well.
So no matter where you look in the combined companies theres a tremendous amount of synergies that
can be gained, which ultimately drive the value in the combination of, of the companies. And
certainly were getting a very skilled workforce. Andrew has a very capable set of employees as do
we, very capable management and, and certainly well be sharing our management with some of those
business unit leaders. So again were getting capable people that know their space and have been
working very hard, as we have, in a difficult situation to make progress in their business.
Thats just an overview. Quite frankly my last phone call was 2 in the morning and Im a little
blind. So I cant read; I cant read all the, all the fine print on this but you can. Its just a
snapshot of Andrew talking about their employees, some 11,000 to our 9,000 or so. Well have again
over 20,000 employees. The balance of business across the geographies is somewhat similar to what
we have today after the combination. So the percentages are, are similar. About the same in
operating income although theirs is off a higher base of revenue so read that at least today as, as
were a little more profitable off the business that we, that we generate. You can see all the
locations, primary locations. The interesting thing I like the overlap in a lot of places.
Theyre strong in, in China. Were trying to build a base of business there so we overlap. They
have places in India. So do we so we get a greater concentration in India. Mary Quay, on our
behalf, is in Czechoslovakia christening the opening of our Bruno facility. Well, they happen to
be in Bruneau also. So thats a real nice fit from that standpoint. So just an awful lot of
positive things in terms of geographic location.
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And again this is a quick snapshot of their businesses, as they exist today. And they have an
antenna and cable business that they run as a, as a business. They have the base station group,
something they call network solutions, which is a combination of some hardware products and some
software applications to support them Wireless innovations, think of that as something similar to
our wireless group. Thats where theyre equivalent although a different architected product. Their
Digivance product exists so something similar but bigger than our, our wireless business. And then
their satellite communications business, a large earth station, satellites and other types of
point-to-point satellite products. So those businesses will be aggregated in the new organization,
those 5 businesses will collapse to 2 larger business units post, post close of the merger.
This just highlights the strengths of our positions in our served markets. So you can see Andrew
to the right in yellow, ADC in red, and then combined company on the left. Thats a really, really
nice profile, okay. Other than a couple of the circles, we really have strong leadership positions
in all of those segments. So again if you flash back 2 years, 3 years, all the town hall web casts,
information that youve received, weve said we want to be a focused company. We want to be number
1 or number 2. We also said we wanted to build scale. We wanted to be global. So this is a very
large transaction but it really does achieve and, and its very complementary and consistent with
all of the objectives that youve heard from me and other members of the management team in the
past.
These are merger facts, you know technical things but just so you can, you know, have a snapshot.
You know were exchanging shares of common stock. They will receive; Andrew shareholders will
receive .57 ADC shares for each one of theirs. When its all over, their shareholders will own
about 44% of the new company. ADC shareholders will own 56% of the new company. The name of the
new company will be ADC Andrew and we will go to business and, and approach our, our identity from
that standpoint.
Global headquarters will be in Minneapolis. Im sure most of you are glad to hear that. I know I
am. Business groups will be where they are close to their markets in their current locations.
Theres absolutely no need to disrupt business units at all. Company leadership, our chairman will
continue as chairman. I will continue as CEO so too bad. (Laughter and applause) Thank you.
Makes me feel good. Well have executive management from both companies as Ive indicated in the
past and Ive talked about a few of those. The one thing Ill say as we go through the process, I
have come to discover that Andrew is a highly respectful company much as is ADC. Its ingrained in
their culture. Its also prevalent among their senior management team in how they deal with each
other, much as it is on the ADC team. So as we go through this process any interface, interaction
we have, you know, we have to treat everybody we meet as a new member of the team and with the
utmost of respect.
Our board of directors, well have 8 of our existing directors, you know, representing
shareholders. They will have 4 of their directors as part of the new entity. And this is quite
typical when you do a combination of the scale of public companies. There is an ongoing, ongoing
duty of oversight among their directors to look out for the best interests of the combined company.
So more on that when we, when we announce that makeup. So were, were pleased. We still retain a
significant number of our tenured directors so were comfortable that the consistency weve had in
strategy and managing the company will go on. And we do know the directors coming over were highly
energized and supported by the vision in, in the combination.
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I think I said this before in terms of merger expectations, you know were really combining leading
positions in, in wireline connectivity solutions with wireless solutions to create a unique global
leader. We are going to create a company of larger scale. The proper execution against this
opportunity should have a dramatic im, impact on earnings over time. We have a lot of assets to
work with. There are a lot of synergies to be, to be had. So like the last 3 years and like what I
believe is business in general if you want to succeed the game is really about execution. So we
cant take our eye off the ball now as we continue to run our own business through the closing of
this transaction. Neither can Andrew. And once we get together in the process preceding that as we
work on planning and synergies, we have to be steely focused and, and highly efficient in the
execution of this opportunity. If we do that were going to create very significant shareholder
value and employee value along the way.
I talked a bit about the growth opportunities. There are many. I can see a lot of opportunities
for cross selling. We have not included these synergies in the, the numbers that came out with the
press release because theyre hard to quantify, can be a little fuzzy, but we know theyre there,
okay. And we expect to achieve them so some of its what I mentioned: South American, Asia, China,
picking up more business in our services business by having a bigger portfolio to pull through.
When carriers combine and begin operating as a single carrier, wireline and wireless, I think
therell be an ample opportunity for a company that meets that convergence platform to be able to
leverage itself in that environment. So I think theres tremendous opportunity to grow our
business together. Customers clearly will benefit. Ive talked about the synergies multiple
times. And I think clearly employees are going to benefit. One of the challenges weve had as a
company is, is providing career paths, okay. Its very hard to provide a career path when youve
gone through a downturn. Its sometimes hard to provide the systematic planning around careers
when youre recovering and youre in a very intense growth mode and operating lean. Even though
well continue to operate lean cause thats the way of the world, a lot more opportunities present
themselves in a 3 and a half billion-dollar company. And the ability to invest in some of the
people development and the career planning activities that Im sure everybody, you know, has a keen
interest in.
Im not going to spend a lot of time on this slide. You can glance at it. I think, you know,
pretty much in a lot of my comments Ive covered a lot of this but clearly this articulates them in
detail.
The organizational structure, I commented on that a little bit too but I think everybody saw the
announcement that came out. You know I think it was very important we entered this with a firm
commitment on the day of announcement to have a Bob Switz, a CEO, direct report, organization
identified in terms of structure and hopefully identified in terms of the people that need to fill
those spots, to eliminate confusion, lack of clarity, etc, so people understand whos leading the
various functions and we can begin the process of integration and synergy development with clear
paths of leadership. I believe weve accomplished that mission. Everybody on my management team
played a role in that; was very supportive of the decisions that were made. The same is true of
the, of the team on the Andrew side. The other thing about this is it hardly matters in a sense if
you look at all of the ADC team and of course even to some degree on the Andrews side, but clearly
the ADC team; everybodys job just got bigger, okay. Weve gone from 1.4 to 3X billion. Every
region, every region I believe more than doubles its revenue size. So whatever region youre in,
youre job just got a lot bigger. In terms of all of us that support that in corporate staff and
so forth, youre job just got bigger. At the business unit level in almost every case jobs got
bigger both on the ADC and the Andrew side. So I see this as a huge positive and an opportunity for
my executives and their executives to grow and develop in their jobs and have an opportunity to
really show their mettle in the process of putting this transaction on a good track. And to me
thats very exciting and I know its very exciting to the, the ADC team members as well.
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We have identified an integration officer for the project as you can see. Laura is, is going to be
the integration officer. You wouldnt believe how she volunteered for that. It was I never saw
such excitement around it. But in to be candid Laura was really enthusiastically approaching
this assignment. I think its a unique assignment in ones career. And her background in, in
managing large-scale projects and programs, and people movements, and all those things, plus her,
her knowledge of the procedures, and policies, and business processes, I think make a, make her an
ideal candidate. And so were going to make sure assistance. Therell be integrations teams formed
much as what you saw with Krone, maybe on a larger scale to deal with the, the size and scope. We
will use consultants as we need them, okay. We will not be using a consultant along the lines that
we did in the past. Weve learned from the process. We know some of the things we need to do. And
some of those things actually got done with the announcement on org that came out today. So well
use them sparingly. We may want customers around or consultants around branding. We have
retained PRTM, who is helping us with supply chain. I, I guess more than likely well continue to
utilize them in terms of assisting us with both ours and what we started with Andrew, so well have
capability there. And PRTM is also noted for its merger integration consulting capability as well.
So should we need some assistance there and if their price is right hope youre listening guys
we will, we will consider utilizing their assistance. So we want this to be done right and so well
take every step and extend every measure to make sure that we do do it right.
In terms of go to market we have a balance. We have 4 business, global business units that have
been created. They will have responsibility for day-to-day manufacturing. Thats a little different
for ADC, not for Andrew. We had our centralized. But given the scope, scale, size of the business
units and I think the important need for the business unit to be able to manage, you know, the full
range of, of customer requirements, manufacturing is appropriate to have back in our business. So
our connectivity business, Pat OBrien will pick up responsibility for all the manufacturing for
his part of the business. Strategic manufacturing will be part of global supply chain so we want
day to day stuff being done by the business unit, satisfy the customers needs on a daily basis,
price, quality, delivery times, etc. Where we manufacture in the world, the total revamping of our
supply chain and strategic manufacturing, where we manufacture, do we manufacture versus outsource,
what countries, etc, all of those strategic mapping responsibilities will be part of global supply
chain. And we expect to pull in all of the global sourcing procurement logistics etc. so on a cost
of sales number that is 70% of about $3.3 billion, which is really a lot of money, we have clear
focus in the ability to, to maximize the savings we get out of our procurement, logistics, and all
of the other aspects of procured services or materials. So thats a new box for us. It is
something that we all believe we needed at ADC and this has given us the opportunity to do that.
The corporate functions as youve seen stay pretty much the same so theres not been a lot of
change there. And the only other, I think, significant change is that our regions will now roll up
under one global market leadership function. So as we look at going forward, you know, we always
said there would be a time and a place where the regions really should become very strong, go to
market focused. And we believed that some catalyst would present the right opportunity to make
that change and so clearly this is that, that, that catalyst. And so I think weve got the right
balance between very strong, global, go to market, regional representation with strong business
units to keep the right balance in our business from a customer perspective. So that leadership
team has, has, has been assigned. Everybody is excited about their new roles. And in a company of
3.5 billion, you dont manage it the same as you manage a company of 1.4 billion, okay. So
everybodys job has gotten larger. Ive tried to keep my direct reports to a manageable number of
around 12 where it was before. I dont think I can manage much more than that so I think thats
appropriate. But keep in mind below my direct report there is a very senior team of executives
thats going to be highly responsible for driving the success of the business. And their jobs have
gotten bigger, not smaller. It is my clear intent as we go forward to try and find the mechanism
to gain visibility into the top 100 or so people in the combined company. Im not sure I can touch
more than that but thats very important in my job so that I can have a window into the talent pool
thats being recommended for career advancement. Where is the next leadership of the company
coming from? So that I can appropriately think about broad based succession planning throughout
the company. So those are, those are some quick comments on, on the structure and you know, heres a, heres a diagram but I think you
could; you could get the picture.
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Interacting with Andrew, you can read this. Im not going to read it to you cause Ive mentioned
my vision is a little fuzzy so this is way too hard for me to read. But you can read it. Youll see
it published in, in other forms. I think its, you know. Very imperative that we follow the rules.
There are rules that govern what we can do and what we cant do until we close this transaction.
Some of us are very familiar with this; some of you may not be. So I would encourage you to get
refreshed. If you have any questions whatsoever, make sure you contact the appropriate individual
to get clarification of, of, of your thoughts.
Ill step closer so that I can read this. This is where to look, who to talk to with questions,
and again I think its very clear. Weve given you multiple opportunities to have paths of
escalation and paths for clarification of questions or issues you may have on your mind.
Financial highlights; Ill briefly go over those. You saw those in the press release. We had a
good quarter. Very clearly up 30% from Q1, a great performance, you know, a year over year sales
growth, you know primarily coming by, coming in fiber connectivity solutions. Global cop, copper
connectivity solutions as well being offset by poor performance in wireless, which we talked about
and expected. We do hope and expect that wireless will pick up in the, the second half of this
year. US sales growth a strong 24% in, in the quarter, you know, strong earnings per share. You
know all of this, all of this again on the heels of some unexpected things that occurred in our
quarter that we had to contend with. So in spite of that we still turned in a very high and very
good performance on revenue growth. And we turned in a very good earnings performance. Its not a
mystery to you all that weve been struggling with product mix issues, okay, thats been affecting
our gross margins. We recovered quite a bit in this quarter with gross margins move up in the 33%
range. So mix played a role in that as well as other factors but all in all, you know, we had a
quarter that we can be proud of. I think all of those that are working on the cash side of the
business; we had a phenomenal performance in cash, okay. We had great, great performance, very
positive quarter in terms of generating cash flow from operations. So a strong quarter, simple
message is we need to continue and deliver, more important now than ever that we stay on track for
the balance of the year.
Timeline, this is May 31st so weve announced the process is, is begun. In the June
1st time frame, you know, we, we do expect to begin the process of really defining and
building the various integration teams. June through close, you know, were going to be focused
on, you know, what are the post close actions that we need to do. Were certainly going to be
laying out goals and objectives for synergies and assigning those out to the various teams,
functions, parts of the business that need to deliver. And of course we will be communicating as
frequently as we can to keep everybody informed on what were doing. So whatever form that takes,
written or otherwise, you know well try to be very communicative through this process. June
through day of close, prepare for Day One, you know, until then were separate companies. So I, I
cant manage the Andrew business; they cant manage mine. We have to stick to our own knitting.
The period from today through close is all about planning. So we can plan to our hearts delight
but we cant run each other business. So well be working very hard at planning. And then as Ive
said before, between now and then lets stay focused on our business, okay. Its, its the focus.
Its the hard work. Its everything that weve done to get us to the point where we can have this
announcement today. Now we just need to continue that so we can assure its completion and that we
enter the post close period with a highly effective, highly organized, highly execution oriented
ADC Andrew.
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So I dont know how you feel but for all of those that have been part of ADC for the past 3 years
or some portion of the, of the past 3 years, whether you realize it or not youre experiencing
something that most people
dont get to experience in their business lifetime. And for those longer-term employees even more
so, okay. You know we all sat at the gates of hell, took a look in, didnt like it, and ran the
other way, okay. And, and fortunately we ran long and hard and weve climbed out of that. We have
completely, completely with this transaction transformed the company. Not that we wont do other
things but we have completely transformed the company into what I believe will be an industry
leader, okay. So thats what youve done. I think its been an absolutely exhilarating period of
time, certainly filled with ahrd work. But I could not imagine a bigger reward than were all
getting with the opportunity to move forward on the scale that well be moving forward. So you
know, as I said, lets stay focused. Lets be energized. Im assuming you are; Ive never seen
such a big crowd in this auditorium. Thats a good sign. So you know, lets not get distracted.
Stay focused. And most of all, lets continue to live the ADC Way. Thanks. Now well do
questions.
Laura: When you said you didnt know how we were feeling, I will say I am excited for the new
role. So I am feeling excited and a little sleep deprived. And probably doubly visually challenged
because I forgot my reading glasses. So we will see how this goes. We do have a lot of questions
that have come in so this is going to be good. Were going to start with one. It was the one my
mother asked when I called her on the way to work this morning to explain why I had been so busy
because she was concerned because I wasnt getting enough sleep. She could tell. Mothers are that
way. But she said, well what is the difference between a merger and an acquisition? And thats
whats Laurie Wilson from North Carolina asks us.
Bob: Well, you know Ill try not to be too technical but you could, they can be one and the same,
okay. But when a company pays a, what I would call a respectable premium, a significant premium
over the share price of the company theyre acquiring that is generally considered an acquisition,
okay. Even though youre merging the, the two companies, the premium is what you pay for control of
the company, okay. Youll note that we have 8 directors; they have 4. A, a merger, a pure merger
would probably have equal board representation. There would be a bigger sharing of top management
than what youre seeing in this company. So Gus Blanchard might not be chairman. Some one of their
individuals might be chairman. I might not be CEO; somebody else might. There might be a COO.
Youd see a different balance potentially in other aspects of, of the executive team. So
technically you go through the same process, you put them together the same way; all the legal
stuff is quite similar. But when you are paying a control premium that normally constitutes
acquisition as opposed to merger. And youve heard the famous term merger of equals of which
there never is one, one way or the other. But, you know, this is clearly a situation where ADC is,
is paying a premium.
Laura: A question coming in and those that are watching the stock price this morning probably have
asked this question, please inform the reasons why our stock price is down $4.38 since we just
announced an excellent quarter and this merger.
Bob: You know I think generically I have to be careful what I say about stock price but
generically on a large transaction like this there is normally a negative reaction for a couple of
reasons. You have arbitrage people that step in and, and utilize techniques to make money. They
have a tendency to drive the, the share price down. And you have investors that just openly worry
about the risks of, of large scale acquisitions and step away from their investment for a period of
time until they can get more information, understand things better, and then potentially they may
or may not decide to come, come back. So if you, if you pay attention in most cases an acquisition
of this size and scale, in most cases you will see a negative impact in the short run.
Laura: Do we have the capability to do questions from the audience today, I trust? Do we have
some questions in the audience here in Minnesota? Come on guys. Okay, we have one back here.
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Q: Bob, looking at the margins of Andrew as compared with ours, how do you see; what impact do you
see on our margins moving forward?
Bob: Good question. Certainly the weighted average, you know, if you averaged the margins
together the new co-gross margin initially will come down, okay. Because theyre operating at a
lower gross margin than we are. We have recognized as a company that we will be entering markets
and the part of the market that we are operating in will be a lower gross margin part of the market
than weve operated in, in the past. Were already there with our FTTX products and, and others.
Thats why weve been working to change our fundamental business model so that we can generate 14%
operating income off of lower gross margins. So initially there will be some compression and the
gross margin will come down. But having said that we are going to be very aggressive about trying
to rebuild and reclaim some of that combined gross margin. There are many, many things that we can
attack to do that. The combined supply chain initiative is one. Facilities into low cost areas of
the world is, is another. There are pricing opportunities that havent been taken advantage of.
There is product-pruning opportunities that havent been taken advantage of. So I fully expect that
whatever margin we consolidate on day one, post close, assuming some degree of reasonableness in
the markets, we have a wide variety of mechanisms to improve upon those gross margins. But I think
it is fair to say with the current mix, the goal that you saw in the past, the 38 to 41, needs to
be revised in light of this. But it will be a very respectable goal, one that I think we can
achieve and certainly be conducive to driving the same amount of operating income that we would
have driven in our stand-alone model.
Laura: Are there more questions here in Minneapolis?
Q: (Unintelligible)
Bob: You know I dont know that I can answer that today. I think its, its something were
looking at. Were certainly exploring whether it might be appropriate to move that around. We do
have an awkward reporting cycle. And you know weve, weve looked at that a number of times over
the years since Ive been here and have kept it the same. So I cant say that we will or we wont.
You know we do have some folks that are looking at that to see whether or not that makes sense.
Laura: Weve got a couple of questions from employees in ADC India so theyve got a lot of
interest in this merger there. Let me just throw out a couple of them here and Ive got very into
this on a couple times. What are the plans for integrating the companies two IT network email
systems and what are the timelines, and key, key milestones?
Bob: Well! On day one! Let me tell you I dont know. But certainly, certainly we will do that as
fast as possible. That will be part of the work that the integration teams will be looking at.
There are a lot of details like that that still have to be discovered, identified, mile-stoned,
assigned responsibility for. You know it is a, it, it does lead me to make a comment. We are going
to be very aggressive, very aggressive, as aggressive as we can be in driving integration and
consolidation. So I cant tell you exact time frames on that but we will proceed. Well err on the
faster as opposed to the slower side.
Q: Bob, when we acquired...
Laura: Lets get the microphone so everyone can hear the question.
Q: Bob, when we acquire Krone they had a very different distribution model than ADC. How is
Andrews compared to ADC in terms of its distribution model or maybe you dont know?
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Bob: Yeah, I mean I, partially I do. I mean theres some similarities but, you know, they do have
some in certain parts of the world, in certain part of their business Im, you know, Im, Im
suspecting there are a few oddities, okay, in terms of distribution. But in general, you know,
they have a large OEM business, which we dont so thats clearly a different channel and set of
customers than, than we have. They do sell direct to carrier as well. To my knowledge they dont
have anything that resembles the enterprise side of the business as we had it in Krone. So I dont
think that is going to be the, the same challenge that we had with Krone.
Laura: We have got Mark Zeller or Zeeler if I pronounced that wrong I apologize in Shakopee
sends a question in. How many manufacturing facilities does Andrews currently operate or do they
outsource the majority of their manufacturing?
Bob: I cant tell you off the top of my head how many facilities. Ive just forgotten the number.
But theres quite a few facilities that they have. So they do manufacture their own product. They
also subcontract some product. But they largely, largely manufacture a lot of their product today
in, in quite a number of locations around the world. You know if I threw out a number or 7 or 8
that might seem about right.
Laura: Well, lets see in my new job I think one of the, the jobs is to make sure all the
elephants around the table or whatever that expression is. So here Jerry Claxton out of Shakopee is
going to help me with that. Is the wireless division in Minnesota closing when Andrew is fully
incorporated? If not with Digivance going to Andrew what is your plan for moving forward with
Minnesotas wireless division?
Bob: You know I think at this point to say its going to close would be premature. Certainly the
functionality and the capability that we have will be integrated into that business unit. It makes
no sense to have a stand-alone capability. Part of the benefit is you gain from the greater scale
and, and recognition in the wireless market that Andrew brings. So having said that I cant say
today that were shutting it down. I can say with certainty that the capability will be integrated
into, into Andrew their, their, the division of Andrew that will be responsible for this
business.
Laura: Heres another one of those kinds of questions also coming out of Shakopee from Joe
Thompson or Thomas. Will this merger expedite closing of most of the manufacturing in Shakopee due
to the duplication of various products?
Bob: To my knowledge there is no duplication with Shakopee. So I dont see in fact I see
minimal, minimal impact if any on global connectivity systems relative to this combination.
Laura: Jim, from Shakopee says what is the TASC or task initiative?
Bob: Thats similar to our North 40. Its called Transforming eh, Transforming Andrews Supply
Chain.
Laura: More questions from headquarters here? Do we want to take a live one? Heres a live
question. Lets get the mike so we can hear it.
Q: I was just curious how this will affect the Rose Project? Are they also going through similar?
Im assuming they are but are they further or the same way that we are with the Rose Project?
Bob: Was this, were you referring to the TASC project?
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Laura: Rose.
Q: Rose.
Bob: Ah, Rose, okay. To the best of my knowledge, to the best of my knowledge and anybody on the
team here can comment on that I would say at this point theyre at least as far progressed as, as
we are on that. And beyond that I cant give you a lot more detail. And, and Mike, do you have any
recollection?
Mike: (Unintelligible)
Bob: Yeah, yeah, okay.
Laura: Another live question here? Weve got one from the audience. Well we do have more coming
in so heres one from Mr. Anonymous and Id stay anonymous too if this were my question.
(Laughter) Are there any more acquisitions in the near future?
Bob: We I havent satisfied; I havent satisfied your appetite with this one. The answer is
hopefully some day, yes.
Laura: Not tomorrow?
Bob: When appropriate, not tomorrow. We are, we are not on the acquisition xxx but you know
certainly acquisitions will continue to play a role in our future. Right now this is task one and
we want to get this wrestled to the ground and off and running and then well look at other
opportunities. Quite frankly when we demonstrate and when we earn the right to go out and ask to
do another because weve got this one well managed.
Laura: Okay. Mike Kirsch had sent in a question before our Town Hall. Why a 30% premium?
Bob: One should not get confused with the premium. You know when we looked at I should say
when we first put a term sheet in front of Andrew, the premium was not 30%; it was something lower
than 30% but it was based on our belief that at that point in time both of our companies were
valued appropriately, okay. So the premium was one measure. Also we looked at it in terms of an
exchange ratio that got us to the .57. That translated into premium or you could work it backwards
but it hardly matters. If you look at other indicators multiples of their earnings before interest
and taxes, if you looked at a multiple of revenue, which was just slightly more than one, it was a
very fair valuation for the company at the time. So we also looked at it in terms of what are the
values, what are the benefits to get out of it? Whats the at that range whats the return,
what we think is the return on investment to ADC if we execute according to plan? So we went
through a number of, of metrics to kind of arrive at forgetting about premium just whats fair
value and what are we going to get out of the transaction? So it happened; it happened to
correlate to the 25% premium. We also had in our minds the clear objective of making the premium
substantial enough so that ADC had control. Lower the premium you start becoming more of a merger
of equals and thats a much more difficult transaction in my opinion to execute. So we felt on the
day that we made our offer both parties were being treated fairly. I can say that throughout the
process nobody went back on their word because the price was struck right on day one. We also
recognized because of the exchange ratio that weve struck that on any given day the premium would
fluctuate up and down because both of us have highly volatile stocks. So to put that in
perspectives between when we gave them a term sheet and today, I think the premium has vacillated
between 8 to 9% and 41% and settled on 30% on the day of close. So sometimes a meaningful measure; in this case I dont think its really
a meaningful measure.
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Laura: So your presentation and the press release talked about cost synergies. Does that mean
wed have layoffs here at ADC?
Bob: I would, I would never say we would not have a layoff but quite frankly, you know, Im not
anticipating anything of significance if anything.
Laura: Question from Jurima Yosi in Finance. Congratulations, Mr. Switz on the merger. For James
Brock, Professor of Economics at Miami University of Oxford I waited to give us the academic ones
until we warmed up believes layoffs will be a significant point to the fact that the economies of
scale drive many mergers and payroll is often a corporate, a corporations greatest cost center.
Without big payroll savings, many mergers will be hard to justify to the stockholders. Could you
please explain how true this statement is in the context of the new company ADC Andrew payroll?
Bob: Well, I think its very clear that we will have payroll reductions around the globe as we
begin the process of integrating and identify redundant, redundant functions in the company. So
certainly there will be layoffs and that is a part of the synergies. And then there are other
synergies that hes ignoring that will be quite substantial that come from supply chain initiatives
and all the other initiatives that Ive mentioned during the course of this presentation. Labor
savings on a global basis is only one component and it will be a component of, of this transaction.
But there are other very quantifiable synergies as well that are non-labor related that will
support the economic value of the transaction. And I will say the numbers that you saw in the
press release, those numbers generate a very acceptable return to shareholders if we achieve our
goals and its only a portion of the total synergies we think well achieve.
Laura: Brian Wood sends in a question. Does AD, does Andrew excuse me have a traditional EF&I
service division?
Bob: No, they have a service in all five of their business units. So unlike ADC where we pulled
our service capability out and built a business around it, theirs is embedded in each of their
business units. And that reflects back on a comment I made during the presentation where we will be
extracting very carefully to insure that we dont disrupt any of the customer service models that
they have; very carefully extracting that out and moving it over into our stand-alone service
business. It is something that they also had considered doing for some time. For whatever reason
didnt choose to do it, but also agree with us that it makes eminent sense. So not, they dont have
it today but it will be extracted out and well make it part of our, our service platform.
Laura: Question from Dave Rath. Could the exchange ratio change based on a drop in ADC share
price?
Bob: You know I think by definition mathematically it probably does but you know were not
expecting at this point any renegotiation of the deal. You know we have a; we have a contract and
so, you know, weve struck the appropriate exchange ratio at the time of transaction and we would
expect that to stand.
Laura: We probably have time for one more question from the audience if theres a live one that
hasnt gotten asked. Weve got one right back here.
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Q: Regarding the branding for ADC Krone in other regions, will this merger affect that at all as
far as how we leverage the Krone brand in, in other regions?
Bob: You know its hard to answer that question today. I, I think were going to proceed very
carefully with, with branding going forward. You know Steve Grady is going to, you know, have a
lot of challenges and a lot of things to think about around branding. You know we dont want to do
anything that disrupts our customer recognitions, ours or theirs, or the ADC Krone. You know we
dont need confusion in the marketplace. So we will, we will proceed very, very carefully with
whatever we do on branding. I cant begin right now to tell you what the answer is but I think
theres probably certain parts of our business that we probably will decide to just leave as is,
you know, and figure out over time what do we do. What are we doing going forward to really
capitalize and maximize on, on the equity in all the brands that we have?
Laura: Is there one more from the audience here in Minnesota? We havent had any from this oh,
okay, one from this side of the room, great!
Q: Why Andrew? I know it was no secret that you were looking at many companies over the past
couple of years to acquire. Is it simply because their breadth of products now completes our
portfolio or one thing that really jumped out at you?
Bob: Sure, yes. I mean the, the first goal we established was if we were going to do something in
wireless we wanted it to be big. We did not want to make an acquisition into a space like that and
have to do a series of acquisitions to gain the scale that we need to be successful. So from day
one we decided if we did anything, wed probably go after 1 of 3 industry leaders. To be honest we
went after all 3, okay. So it was; it was a matter; it was a matter of exploring all alternatives.
All had relative degrees of attractiveness and issues, okay. We liked Andrew the best because it
was the market leader. It was the largest. It had the most history, established brand, high
quality products, strong reputation in its, in its customer base, the right amount of global
assets, and one that we thought had the most promise in terms of a higher degree of synergies in
economic benefit. So it always was our number 1 choice. You cant always get what you want. We did
in this case. But no matter what, we decided that one of the three companies we had an interest
in; we had to get one of them if we wanted to have an effective platform to execute in the wireless
market with. So we got the one we wanted. Were very pleased with it. But you know as I said
earlier, you know, we, we want industry leadership. We want market leadership. We got that.
Laura: So on a scale of 1 to 10, how excited are you?
Bob: 9.999.
Laura: Just cant get a 10 out of you. (Laughter) Okay, I think were at the point where wed
ask for your summary comments. What are the 2 or 3 things you want people to take away today?
Bob: You know very simply, very simply hard work, dedication, execution pays off, okay, this is
what its all about. We work hard for these types of opportunities. They translate down the road
into other opportunities. So whenever you question the hard work that youre involved in, I hope
that youre convinced now that it really does pay off. And so thats one message. The second
message is simply weve got a lot of work to do. We need a lot of excitement and we need a lot of,
a lot of dedication going forward, and clearly a lot of focus on delivering the promise of our
current business to get through the balance of the year so that we can move into 2007 as a combined
company ready to hit the ground running, and you know, kind of knocking the ball out of
the park. So those are my two big messages. Other than a final thank you all for enabling us to get
to this position. Thanks.
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Safe Harbor for Forward Looking Statements
This press release contains statements regarding the proposed transaction between ADC and Andrew,
the expected timetable for completing the transaction, future financial and operating results,
benefits and synergies of the proposed transaction and other statements about the future
expectations, beliefs, goals, plans or prospects of the management of each of ADC and Andrew.
These statements are based on current expectations, estimates, forecasts and projections and
management assumptions about the future performance of each of ADC and Andrew and the combined
company, as well as the businesses and markets in which they do and are expected to operate. These
statements constitute forward-looking statements within the meaning of the U.S. Private Securities
Litigation Reform Act of 1995. Words such as expects, believes, estimates, anticipates,
targets, goals, projects, intends, plans, seeks, and variations of such words and
similar expressions are intended to identify such forward-looking statements which are not
statements of historical fact. These forward-looking statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions that are difficult to assess.
Actual outcomes and results may differ materially from what is expressed or forecasted in such
forward-looking statements. Factors that may cause actual outcomes to differ from what is expressed
or forecasted in these forward-looking statements, include, among other things: the ability to
consummate the proposed transaction; difficulties and delays in obtaining regulatory approvals for
the proposed transaction; difficulties and delays in achieving synergies and cost savings;
potential difficulties in meeting conditions set forth in the definitive merger agreement;
fluctuations in the telecommunications market; the pricing, cost and other risks inherent in
long-term sales agreements; exposure to the credit risk of customers; reliance on contract
manufacturers and other vendors to provide goods and services needed to operate the businesses of
ADC and Andrew; fluctuations in commodity prices; the social, political and economic risks of the
respective global operations of ADC and Andrew; the costs and risks associated with pension and
postretirement benefit obligations; the complexity of products sold; changes to existing
regulations or technical standards; existing and future litigation; difficulties and costs in
protecting intellectual property rights and exposure to infringement claims by others; and
compliance with environmental, health and safety laws. For a more complete list and description of
such risks and uncertainties, refer to ADCs Form 10-K for the year ended October 31, 2005 and
Andrews Form 10-K for the year ended September 30, 2005 as well as other filings made by ADC and
Andrew with the United States Securities and Exchange Commission (the SEC). Except as required
under the US federal securities laws and the rules and regulations of the SEC, ADC and Andrew
disclaim any intention or obligation to update any forward-looking statements after the
distribution of this press release, whether as a result of new information, future events,
developments, changes in assumptions or otherwise.
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Additional Information and Where to Find It
In connection with the proposed transaction, a registration statement on Form S-4 will be filed
with the SEC. SHAREHOLDERS OF ADC AND STOCKHOLDERS OF ANDREW ARE ENCOURAGED TO READ THE
REGISTRATION STATEMENT AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, INCLUDING THE JOINT
PROXY STATEMENT/ PROSPECTUS THAT WILL BE PART OF THE REGISTRATION STATEMENT, BECAUSE THEY WILL
CONTAIN IMPORTANT INFORMATION ABOUT THE MERGER. The final joint proxy statement/prospectus will be
mailed to shareholders of ADC and stockholders of Andrew. Investors and security holders will be
able to obtain the documents free of charge at the SECs web site, www.sec.gov. Investors and
security holders may also obtain the documents free of charge from Investor Relations at ADC by
writing Investor Relations, ADC Telecommunications, Inc., P.O. Box 1101, Minneapolis, Minnesota
55440-1101; or calling 952-917-0991; or at
www.adc.com/investorrelations/financialinformation/secfilings/. Investors and security
holders may also obtain the documents free of charge from Investor Relations at Andrew by writing
Investor Relations, Andrew Corporation, Westchester, Illinois 60154; or calling 800-232-6767; or at
www.andrew.com/investors/sec
Participants in Solicitation
ADC, Andrew and their respective directors and executive officers and other members of management
and employees may be deemed to be participants in the solicitation of proxies in respect of the
merger. Information concerning ADCs participants is set forth in the proxy statement dated,
January 24, 2006, for ADCs 2006 annual meeting of shareholders as filed with the SEC on Schedule
14A. Information concerning Andrews participants is set forth in the proxy statement, dated
December 30, 2005, for Andrews 2006 annual meeting of stockholders as filed with the SEC on
Schedule 14A. Additional information regarding the interests of participants of ADC and Andrew in
the solicitation of proxies in respect of the merger will be included in the registration statement
and joint proxy statement/prospectus to be filed with the SEC.