TE Connectivity Ltd. TEL disclosed the completion of the divestiture of the Broadband Network Solutions (‘BNS’) business,which is a part of its Network Solutions division. In January this year, the company penned a $3.0 billion deal with CommScope Holding Company, Inc. COMM for the same.
TE Connectivity projects to use majority of the sale proceeds for buying back its common shares. Thus, strategically, the company will be successful in making the deal neutral to adjusted earnings per share in a one year span. As a matter of fact, the sold BNS businessdid not include TE Connectivity’s Subsea Communications or Data Communications businesses.
The deal will be a win-win situation for both the companies. For CommScope, the acquisition will enhance its position in the industry. This Hickory, NC – based company is a network infrastructure provider and specializes in end-to-end solutions related to technology and wireless and wired networks.
For TE Connectivity, the disposition will further strengthen its leadership positionin the connectivity and sensor business. With the conclusion of the sale, TE Connectivity now derives 90% of its revenues from the thriving connectivity and sensor markets. Also, the company reaps over 80% from harsh environment applications and has garnered over $1.6 billion in revenues in the last three years from it. Hence, we view the divestiture as a strategic fit for the company.
Moreover, TE Connectivity’s efforts to raise shareholders wealth through share repurchases and dividends is commendable. Apart from rewarding its investors via sale proceeds, the company’s board of directors proposed a yearly dividend increase of around 14% to $1.32 for fiscal 2015. If implemented, this will mark the fifth consecutive year of double-digit dividend increase for the company. Such initiatives boost investors’ confidence in the stock.
TE Connectivity currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the elec-misc components industry are Mobileye N.V. MBLY and Active Power Inc. ACPW. Both stocks sport a Zacks Rank #1 (Strong Buy).
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