Filed by Allen Telecom Inc.
Pursuant to Rule 425 under the Securities Act of 1933
Subject Company: Allen Telecom Inc.
Commission File No.: 1-06016
This document is being filed pursuant to Rule 425 under the Securities
Act of 1933 and is deemed filed pursuant to Rule 14a-12 under the Securities
Exchange Act of 1934.
The following is a transcript of a teleconference and webcast held on
February 18, 2003 by representatives of Andrew Corporation and Allen Telecom
Inc. with members of the financial analyst community and the public.
ALLEN TELECOM INC.
MODERATOR: CHARLES NICHOLAS
FEBRUARY 18, 2003
10:00 A.M. CT
Operator: Good day, and welcome to the Andrew Corporation and Allen Telecom
Investment Community conference call. Today's call is being recorded.
At this time, I'd like to turn the conference over to Mr. Chuck Nicholas,
Vice Chairman and Chief Financial Officer. Please go ahead, sir.
Charles Nicholas: Thank you, operator, and good morning, everyone. And thank you
for joining us today to discuss Andrew's agreement to acquire Allan, a
transaction that we believe significantly enhances Andrew's position as the
leading end-to-end RF solutions provider. Here this morning are Floyd
English, Chairman of Andrew, Ralph Faison, President and CEO of Andrew,
Phil Colburn, Chairman of Allen, Robert Paul, President and CEO of Allen,
and Bob Youdelman, CFO of Allen.
But before we get into the interesting stuff, I need to read the obligatory
Safe Harbor statement. Some of the statements we'll be making today are
forward-looking statements, and we caution our listeners and others that
these statements involve certain risks and uncertainties. Factors that may
cause actual results to differ from expected results include the company's
ability to integrate this acquisition and to realize the synergies and cost
savings anticipated from the transaction, the effects of competitive
products and pricing, economic and political conditions that may impact
ANDREW / ALLEN CORPORATIONS INVESTMENT COMMUNITY CALL
1-2
customers' ability to fund purchases of our products and services, the
company's ability to achieve the cost savings anticipated from cost
reduction programs, fluctuations in international exchange rates, the
timing of cash payments and receipts, end use demands for wireless
communications services, and other business factors. Investors should also
review other risks and uncertainties discussed in the company's documents
filed with the Securities & Exchange Commission.
With all of that said, let me turn the call over to Ralph Faison - Ralph.
Ralph Faison: Thank you, Chuck, and welcome, everybody. As you might imagine, I
am very excited to share our news with you this morning. Bob Paul and Chuck
Nicholas will have a few words to say a bit later, but first I wanted to
cover a few prepared comments about the strategic transaction and how we
believe it'll transform both our company and the $20 billion wireless
infrastructure subsystems industry.
As you may know, Andrew has a product portfolio of unrivaled breadth. We
support traditional TDMA, CDMA and GSM wireless standards, as well as all
the emerging 3G technologies. Andrew is established leader in coaxial
cables and connectors, power amplifiers, terrestrial microwave antennae
systems and the technology leader in bay station antennas. Our products and
expertise are found in communications systems everywhere. This includes
wireless and distributed communication, LAN mobile radio, cellular and
personal communications, broadcast, radar and navigation. Our blue chip
customer base of thousands of customers and 170 different countries
includes the most important operators and OEMs within the industry.
Allen is one of the leading suppliers of filters, bay station antennas,
network geo-location solutions and in building solutions. Allen brings to
Andrew a highly complementary portfolio of advanced products and a
dedicated and highly skilled employee base to support it. Founded in 1926
by a former chief engineer for Henry Ford, Allen has a proud history as a
pioneer and innovator in technology and telecommunications. Allen went
public in the 1960s and is today an acknowledged leader, known for quality
products and services.
The business combination of Andrew and Allen will bring together two
strong, dynamic, leading edge innovators. Following completion of the
transaction, expected before the end of first half of 2003, Allen will be
stronger, even - Andrew will be stronger, even more dynamic and even better
ANDREW / ALLEN CORPORATIONS INVESTMENT COMMUNITY CALL
1-3
positioned strategically, technologically, operationally and financially.
This will create growth opportunities throughout our business.
With Allen, Andrew will uniquely - will be uniquely positioned in the
industry to generate both accelerated near term growth from its expanded
presence in key market segments and to better capture the significant
longer term opportunity in the $20 billion wireless infrastructure
subsystems market. This positioning directly supports our overall objective
of building stockholder value. Let me talk strategically. The transaction
extends Andrew's global leadership in the wireless infrastructure
subsystems market. The combining company will be the number one global
supplier of coaxial cables, power amplifiers, terrestrial microwave
antennas, network geo-location solutions, repeaters and in building
solutions. And it'll be the number two merchant provider of filters and bay
station antennas. Furthermore, the transaction enables the combined company
to provide total customer solutions including virtually the entire bay
station RF footprint, integrating access components such as filters and
amplifiers, to better meet the evolving performance and cost efficiency
requirements of our customers. As a leader in all major wireless RF
subsystems infrastructure statement, our wireless service provider and OEM
customers will benefit from the availability of our one-stop shopping for
all of their wireless subsystems infrastructure needs. We expect that our
comprehensive product offering, combined with other factors that I'll
discuss in a moment, will increase customer penetration and advance our
strategy to diversify even further our product offerings and create new
revenue streams.
Let me talk from a technological perspective. We are acquiring one of the
leading innovators in emerging growth markets. Allen will give us immediate
access to leading technology supporting advanced filters, bay station
antennas, in building solution and network geo-location solutions.
Following the acquisition, Andrew's combined annualized 2003 R&D spending
will be more than $90 million. That's the largest R&D program by a
magnitude of two in the industry. I think this demonstrates our focus on
expanding our technological leadership, maximizing support to our
customers, increasing design wins and improving our time to market
advantage. It will also allow us to continue to drive the integration of
our expanding product line within the wireless bay station. Let's talk
about the operations. We are adding to our already strong and seasoned
management team, a company of great business people and technologists, with
complementary knowledge and
ANDREW / ALLEN CORPORATIONS INVESTMENT COMMUNITY CALL
1-4
insight. We know our Allen colleagues well and respect them highly. I am
very pleased that Bob Paul and Phil Colburn will join our board, lending
their considerable talent and vision to our strategic direction. While we
can't affect the integration of the two companies until the transaction is
completed, we will be forming a transition team in which our senior
executives and that of Allen's will actively participate and have as its
principle objective a smooth, seamless transition, focused on building a
company with unparalleled ability to provide maximum value in the wireless
infrastructure subsystems industry. Our customers clearly demand the
maximum value from their capital expenditures, and it is this focus on
customer needs and demands that will guide the integration of Andrew and
Allen business.
Andrew has significant experiences with the integration of new businesses
into its overall structure, a skill that was recently proven with the
successful integration of businesses of Salient over the past year. At the
heart of our integration of Andrew and Allen will be a focus on the
establishing a single organizational structure that effectively and
efficiently develops, manufactures and markets, supplies and services those
products and solutions to the customers that the customers expect and
demand.
Finally, this is a landmark transaction that will fundamentally redefine
the dynamics of our industry. It creates a company with unparalleled scale
and financial strength to offer the most comprehensive solutions in the
industry. It further extends Andrew's leadership within our rapidly
consolidating industry and strengthens Andrew's strategic position to
continue to lead the industry through its consolidation phase and future
growth, a strategy initially articulated by our chairman, Floyd English.
So, now I'd like to turn the call over to Bob Paul, President and CEO of
Allen, to offer his perspective on this exciting transaction. Bob has been
a driving force in Allen for over 32 years. And what this means to the
Andrew board, he will become one of my bosses. So, the floor is now yours,
Bob.
Robert Paul: Thank you, Ralph. Let me begin by saying that my colleagues at
Allen fully share my enthusiasm and excitement about the potential of this
transaction. We are convinced we can accomplish more as part of Andrew, the
leading end-to-end RF solutions provider, than we could on a stand-alone
basis.
ANDREW / ALLEN CORPORATIONS INVESTMENT COMMUNITY CALL
1-5
This transaction brings together two strong entrepreneurial organizations
with complementary products, skill sets, customer bases and target markets.
By leveraging our combined technologies and financial and human resources,
Andrew will be able to expand on its leading market position and broad
product portfolio to present to all the customers and even more
comprehensive and diverse offering in the radio frequency subsystem
infrastructure industry. As a part of Andrew, we will have access to new
customers, technologies and the enhanced ability to serve customers by
offering the broad range of products and services. Our industry-leading
technology in filters, antennas, network geo-location solutions and
repeater and in building solutions will enjoy the strong support of the
entire Andrew organization.
Our shared management vision with the Andrew team will allow us to
accelerate our product development initiatives and help position the
combined company to participate in enhanced market opportunities and growth
alternatives. For Allen shareholders, this transaction provides an
immediate proof in on their investment as well as the significant
opportunity to benefit from the growth of Andrew going forward by virtue of
their continuing investment.
I'd now like to ask Chuck Nicholas to address some of the key financial
elements of this transaction - Chuck.
Charles Nicholas: Thanks, Bob. Financially, Andrew will have combined pro forma
revenue of $1.3 billion for the 12 months ended December 31, 2002, with a
much more diversified product mix and an expanded presence in exciting
growth areas. Building on what Ralph mentioned a few moments ago, we expect
that this will give us increased size, scale and financial wherewithal that
will appeal to our customers. Following the transaction, Andrew will
continue to have a strong balance sheet, strong cash flow and unparalleled
strength in our sector, which will give us the financial flexibility to
continue to execute our business strategy. Importantly, we expect this
transaction to be accretive to Andrew's earnings per share within the first
full year following completion of the transaction. It will be structured to
qualify as a tax-free exchange.
We see substantial opportunities for synergies and cost savings, in excess
of $40 million annually after the integration, coming from new efficiencies
in manufacturing, research and development, sales and purchasing
operations.
ANDREW / ALLEN CORPORATIONS INVESTMENT COMMUNITY CALL
1-6
I'd like to now take a few moments to review the terms of the transaction.
Andrew will acquire Allen in a stock for stock transaction valued at
approximately $500 million. Allen shareholders will receive 1.775 shares of
newly issued Andrew stock for each Allen share that they currently own.
Based on Andrew's closing price of $9.01 per share on Friday, February
14th, the consideration represents a 21 percent premium over Allen's share
price on that same day. Following completion of the transaction, on a fully
diluted basis, excluding Allen's preferred stock, Andrew shareholders will
own approximately 64 percent and Allen shareholders will own approximately
36 percent. We expect the transaction to be completed no later than June
30, 2003, and of course it's subject to Hart-Scott-Rodino clearance and
customary closing conditions.
That concludes our formal remarks concerning the transaction. And now, we'd
like to answer your questions - operator.
Operator: Thank you. The question and answer session will be conducted
electronically. To ask a question, please press star one at this time.
We'll take as many questions as time permits and proceed in the order that
you signal us. If you are on a speakerphone, please make sure your mute
function is turned off to allow your signal to reach our equipment. Once
again, that is star one to ask a question. And we'll pause for just one
moment.
And our first question comes from Wojtek Uzdelewicz of Bear Stearns.
Wojtek Uzdelewicz: Good morning. A couple questions is could you give us a
little bit more sense on synergies? Allen historically has been pretty
strong in Europe, but you guys have a pretty big operations there with
Siemens. On the other hand, Andrew was much more leveraged to the U.S. and
Asian markets. Can you kind of give us a little bit more geographic sort of
synergies and maybe some of the customers where you both leveraging against
each other?
Second is there's always sort of the question what would be your strategies
to go to customers and sell essentially complete solution? Would you offer
them bigger discounts? Can you talk a little bit of strategy as a combined
to company how you're going to leverage that?
Somewhat related to that obviously, people have some concerns about the
whole issue with Lucent, your exposure. I would assume that the
management's done a little homework before doing that. Can you give us an
update on that as well?
And then I have just one quick follow-up on that.
ANDREW / ALLEN CORPORATIONS INVESTMENT COMMUNITY CALL
1-7
Ralph Faison: OK, Wojtek, this is Ralph. Let me take your questions in the
order, I think, in which you delivered them.
Let's talk first about synergies. True, we have complementary -
fortunately, we have complementary market or geographic coverage here,
which of course will be helpful. Where we drive synergies we also have some
of the similar products. So let me start. For instance, in the antenna
arena, bay station antennas, we have strengths of course in China, in Latin
America. Allen has strength in North America. So, that certainly gives us
synergies on the marketing side. But on the production side, manufacturing
side, we see lots of room for consolidation of those production and
manufacturing operations. Of course, there'll be synergy opportunities
throughout the SG&A line with, well, starting Bob becomes one of my bosses.
We don't need two CEOs. So, as you go across the SG&A lines, we have a
significant number of synergies there. Throughout other product categories,
filters and amplifiers, we see a good bit of synergies and operational
synergies there, combining manufacturing, distribution operations. So,
that'll cover some of the synergy areas. And as we pointed out in the
release, we look for going out of 2004 a run rate of about a $40 million
plus cost synergy with - during '04, the impact of fiscal '04 being
accretive with about $20 million worth of savings realized in fiscal year
'04.
When we talk about that one-stop shopping, there's a couple of aspects
there. Certainly scale helps, particularly in this industry, where
continued price pressure drives continued pressure on cost. Any time we can
combine facilities, get larger volume, larger scale, of course, our cost
performance is much more efficient.
In terms of one-stop shopping, it's not just the ability to offer all the
components, but the ability to integrate. For instance, a lot of demand
from OEMs these days is integrating amplifiers and filters, integrating
throughout the bay station and combining housings, combining or using one
power supply instead of several. So, that kind of design leverage will also
help us offer one better price performance through our OEM customers, but
as well better actual performance and quality performance, less
interconnect, more integrated product.
And I have to confess, you had a third portion of that question.
Wojtek Uzdelewicz: Yes. I think there's some concerns in the past you guys
mentioned that on the Lucent exposure there with your power amplifier
business is that any - is that - we're trying to kind of
ANDREW / ALLEN CORPORATIONS INVESTMENT COMMUNITY CALL
1-8
identify of what could be the risks to the closure of the business. And can
you give us a little bit, if you can, an update on the sort of Lucent
situation?
Ralph Faison: Sure. Well, of course, in - let's start with just Andrew and
Lucent exposure. As we've talked before, of course, Salient had it as its
principle customer Lucent. Since the acquisition of Salient by Andrew,
we've added five additional OEMs, therefore reducing our amplifier product
only exposure to Lucent. Amplifiers as of the last quarter, if you'll
recall, we talked about the revenue being about 75 percent Lucent, 25
percent new customers, with that continuing to - exposure in just
amplifiers continuing to be reduced to Lucent. Of course, as we bring Allen
into Andrew the overall revenue exposure to Lucent significantly reduces
again because Allen has a nice base of both existing customers of Andrew as
well as incremental business in some of the product areas such as
geo-location with a significant revenue stream coming from those products.
In terms of any changes that the transaction would bring to our Lucent
relationship, we see nothing but enhancement, drawing back to the original
comment I made around providing integrated products. Andrew has up until
this time had a need to build out its capabilities in the filter arena.
With Allen joining with us, their forum units being the second largest
merchant market filter company out there, certainly brings us great
technology, scale and products to then add to the future integrated
capability of amplifiers and filters.
Wojtek Uzdelewicz: Great. Just two very quick clarification. You mentioned that
the deal is - you expect to close in June. You've got several months away.
Do you expect or any expectation it might get second review from government
in terms of antitrust or anything like that?
Ralph Faison: You know, Wojtek, that's - if you could predict that for me, I'll
hire you as a consultant. It certainly don't matter. We don't expect any
issues there. If you think about from where we stand from a product
perspective, we don't see any major obstacles at all. There's still a lot
of competition out there. And while we are the largest scale player in our
industry, our customers certainly are quite a bit larger than us. So, we
certainly don't anticipate a problem.
Charles Nicholas: And, Wojtek, you shouldn't - the June 30th - no one should
take the June 30th timing estimate as an indicator of expectation of
needing additional or extra time to get any of the Hart-Scott-Rodino or SEC
or any other clearances. It's not. It's just we think reasonable estimation
of getting everything accomplished. And if it can get done on April 30th
we'll do it on April 30th.
ANDREW / ALLEN CORPORATIONS INVESTMENT COMMUNITY CALL
1-9
Wojtek Uzdelewicz: Great. Thank you.
Ralph Faison: Thank you, Wojtek.
Operator: Our next question comes from Arindam Basu of Morgan Stanley.
Arindam Basu: Hi, guys. How are you?
Ralph Faison: Good Arindam. How are you this morning?
Charles Nicholas: Hi, Arindam.
Arindam Basu: Let's see, Ralph was named CEO last week, this week. You guys
haven't been busy at all.
Ralph Faison: Not a thing here.
Charles Nicholas: We're going to take a little break next week.
Arindam Basu: Right. Hey, you know, you guys talked a little bit about overlap
in terms of product areas. I wanted to get a sense for discussions you've
had or what you have on the drawing board in terms of combining filter
power amplifier modules. And also, if you could talk about other low
hanging fruit in terms of product synergies or in terms of integrated
product offerings that you think are readily apparent and being called for
from either the carrier customers or from the OEM customer base.
Ralph Faison: OK. Why don't I start and then I'll ask Bob to jump in. As already
mentioned, there is an accelerating pace of customer requests around
integrating for cost and performance efficiencies inside the bay station
cabinet primarily. Amplifiers and filter is the obvious one that we are
focused on with this transaction on that product line. So, we're looking -
as a bid by bid basis, as you know, our OEM customers still specify pretty
specific radio compatible products. On a bid-by-bid basis, we've
significantly enhanced our ability to respond to those kinds of products.
On the other side, just pure synergies around bay station, both products
and production and R&D - research and development - design capabilities, of
course, will be achieved with the transaction. Bob, you want to...
Robert Paul: Yes. I think that we both have found and have supplied some
integrated product to OEMs, because had a fledgling operation in what we
thought was some unique technology and power amplifiers in order to supply
product. And I know Andrew has internally been developing the filter
capability. But when we look at what the other one has, you recognize how
far you would have had
ANDREW / ALLEN CORPORATIONS INVESTMENT COMMUNITY CALL
1-10
to go to try to develop that respective business. So, I think our ability
to supply those kinds of products is greatly enhanced.
And I'll give you another good example. We both have some very strong
technology in terms of the bay station antenna business, where we competed
in different parts of the world at various times. But when you look at the
intellectual property, the IP, there's some very unique patents that I know
Andrew has that are going to allow us to add new features to some bay
station antennas that should be immediate in terms of when the deal is done
and closed, which of course the soonest that we can start implementing
these changes, should allow us to really offer some unique products. So,
we're excited about that.
Arindam Basu: And does this - at first glance it doesn't necessarily change the
dynamic of what's going on with the OEM radio. But are there some things
that we should be thinking about in terms of being able to approach the OEM
radio within the bay station? Obviously that's probably going to be the
point of most resistance from the OEM perspective. But does the joint
venture and some of that technology give you an entree there as well?
Ralph Faison: Well, certainly, Arindam. I think your first - or in the middle of
that your comment around that's an area that is primarily run by the OEM
today. And you probably noted that Andrew has had a history of making sure,
one, we satisfy customers and not threaten any customers whatsoever. So, to
the degree that the OEMs need the help in integrating bay station radios
with amplifiers, we think there's some cost saving opportunities there and
we certainly do believe we're the best positioned given - well, as I
mentioned in my comments, if you look at just the pure R&D girth that we
now have on a combined basis, the number of RF engineers, the number of
former Bellabs engineers that have radio experience, we think we are
uniquely qualified in the industry to provide that service to the OEMs, but
only if and when they demand that service. We certainly would never want to
be perceived as competing with our large OEM customers.
Arindam Basu: And what's next on the drawing board? Should we be thinking about
software? Should we be thinking about other hardware? What do you think
there are gaps or potential areas where you're still looking for
strengthening of the existing portfolio with the combined Andrew-Allen
organization as you see it...
Ralph Faison: Well, if you...
ANDREW / ALLEN CORPORATIONS INVESTMENT COMMUNITY CALL
1-11
Arindam Basu: ... six months from now?
Ralph Faison: If you look across the RF facet, the RF footprint and you do look
at further integration and continued cost pressure and you think about
perhaps radio design, software is certainly more and more of a obvious area
that we'll need to continue to grow in. One of the things that excites me,
if you think about the network-based geo-location business that Allen has
today, they have a very strong software content there and a very large -
relative to our space, a very large software group that I think we're going
to build this - use very much in that full RF path integration.
Arindam Basu: OK. Thanks, folks. Congratulations again.
Ralph Faison: Thanks.
Operator: And our next question comes from Mark Jordan of A.G. Edwards.
Mark Jordan: Good morning, gentlemen.
Ralph Faison: Hi, Mark.
Mark Jordan: Question concerning the - your European manufacturing structure
after this is - this deal is consummated. Reform in Italy and (Mikom) in
Germany I know Andrew was restructuring their manufacturing and, I believe,
were moving manufacturing to an Eastern European country. Given this
merger, how will this impact Andrew's plans and how long do you believe it
will take to rationalize your manufacturing in Europe?
Ralph Faison: Sure. Well, as you know, from an Andrew perspective, we are well
into our restructuring announcement and taking a lot of manufacturing,
particularly the high labor content aspects of our manufacturing, into
central Europe. But we are not so far along that we can't increase the size
of some of those facilities. And one of the major benefits of this
transaction is to reduce the total number of distribution manufacturing
assets and consolidate those into more efficient single facilities. We've
spent some time with Allen, of course, over the course of the last few
months and talking about various areas where synergies may be gained. And
we're quite confident that we can combine the best of both in the best
areas to, one, stay local for key markets, but, two, the most efficient
manufacturing facilities from a labor and our capital content perspective.
Mark Jordan: Do you expect to - that you'll have this all rationalized or
transitioned by - in this calendar year?
ANDREW / ALLEN CORPORATIONS INVESTMENT COMMUNITY CALL
1-12
Ralph Faison: Well, I wouldn't say - let me go back. Certainly the plans will be
developed shortly, the specific plan. In terms of moving this kind of
production, it certainly won't be fully completed by the end of this
calendar year. We'll certainly be well underway and have a good bit of it
done. But I would expect, as you - we noted from our synergy progress,
going out of '04, having attained better than $40 million in cost savings,
our target that we talked about in the press release, that throughout '04
we'll be continuing to move and consolidate those manufacturing and
distribution facilities, which is the principle driver of that $40 million
worth of synergies.
Mark Jordan: OK. Thank you.
Operator: And our next question comes from Richard Valera of Needham & Company.
Richard Valera: Good morning, gentlemen.
Ralph Faison: Hey, Rich. How are you?
Richard Valera: Good, thanks. Could you just talk about what happens to your -
to Allen's convert? Do we just assume that gets converted to common if this
goes through?
Charles Nicholas: No, you shouldn't, I don't think, Rich. In fact, it can't. I
think Bob Youdelman will be the best one to talk to it.
Robert Youdelman: Yes. What will happen with the convert there are no
acceleration provisions as a result of this type of a transaction? So, they
will be converted into an Andrew instrument at the closing and will
continue to have the same coupon rate on it and will be converted into a
conversion into Andrew stock, reflecting the exchange ratios that we talked
about up till now. So, it becomes an ongoing Andrew instrument at the
closing.
There is a, as you may recall, a call provision at the third anniversary,
which would be in roughly March of 2005. That will be the earliest point in
time in which the company could call it, and that would be somewhat
dependent upon stock price at that point in time under the provisions of
the convert.
Richard Valera: Great. Thanks on that. And it looks like the only two areas
where there might be any - of any concern about sort of antitrust issues
would be the bay station antenna area and repeaters and in building
coverage. Could you - you gave estimates for the combined market shares in
those two areas. Could you give some rough feel for what the market shares
would be on a stand - for each of the two companies respectively in those
two areas as we sit now?
ANDREW / ALLEN CORPORATIONS INVESTMENT COMMUNITY CALL
1-13
Ralph Faison: Rich, I don't think we're far enough along to be able to give a
specific percentage. What I can tell you is from a bay station antenna
perspective and a merchant market perspective, not counting that with the
OEM's make, we would be number two in size globally, with a number of
substantial competitors in that field. So, it's why we don't feel there'll
be a problem.
On the in building, in building can be a very, very broad category. So, for
instance, if you really think about full wireless in building distribution
you start looking at companies like - well, let's start with a very big one
- Cisco, (Foxum) and others. So, if you start looking at that category, it
depends on how one would define the category. As you know, we focus on the
distributed antenna, RADIAX cable, that kind of extension of the public
wireless networks into closed - in closed spaces like tunnels, large public
facilities, and along train tracks for that matter.
Robert Paul: Also keep in mind that all of those tests that you were referring
to are basically on a country by country basis or market by market, looking
at the U.S. as one market, looking at the European community as another.
And I think as Chuck mentioned earlier, the strength of the two companies
would be different in different markets. So, there might not be as much
impact worldwide on any individual markets where, for example, Allen's
antenna business - bay station antenna business might be stronger in the
U.S., whereas Andrew's might be stronger in the Asian marketplace.
Richard Valera: Great. That's helpful. And just one final question. In terms of
talking to your customers about integrated products, can you give us any
sense of what - sort of the feedback you're getting in terms of their
preference for dealing with a company that can provide, say, at this point
an integrated filter power amp solution versus ones that can't and just if
there's any more color you can give in terms of what you're hearing from
your OEM customers on that front?
Ralph Faison: Well, certainly it's a trend that - it's certainly nothing new. If
you look at the history of all electronics, there are conversions into - in
some cases - or in most all cases smaller, more compact, more reliable
combinations, which were formerly more distributed components. So, nothing
new in this particular space. Clearly our OEM customers up until this time
have, frankly, as Bob pointed out, given Andrew credit for, "Well, you're
great and amplifiers. Can you really assure me that you'd be good in
filters so that when I put the trust in you to do an integrated amplifier
filter products I'll have the best of both?" I think Allen was seeing the
same thing on the filter side, with (forum) being the number two filter
manufacturer in the world. Strong - our strength
ANDREW / ALLEN CORPORATIONS INVESTMENT COMMUNITY CALL
1-14
in filters, but perhaps a question mark around amplifiers. So, clearly our
OEM customers - and I can say thus far in our customer calls this morning
very nice reaction from our customers and seeing this as a positive move to
help them achieve, again, more cost effective and more highly reliable and
higher performance capability within the bay station.
Richard Valera: Great. Just one final follow-up. What's your best guess on when
you might see production products in the field of an integrated type, the
integrated PA filter products in the field? Is that sort of a year out or
is that further out than that?
Ralph Faison: No. We're - notwithstanding my comments before, I would say that
we have been successful in winning orders, winning bids for integrated
amplifier filter products. And we'll be delivering some of those within the
current fiscal year.
Richard Valera: Great. That's very helpful. Thanks, gentlemen.
Ralph Faison: Thanks, Rich.
Operator: And our next question comes from Larry Harris of HC Wainwright.
Larry Harris: Yes. Thank you and congratulations on today's announcement.
Ralph Faison: Thank you, Larry.
Charles Nicholas: Thanks, Larry.
Larry Harris: With respect to the cost savings, I just wanted to make sure I
have the correct numbers. If I understand it, it would be cost savings of
about $20 million in fiscal 2004, that we would exit 2004 at $40 million a
year run rate.
Charles Nicholas: That's correct.
Larry Harris: OK, great. Do you anticipate that there might be some
restructuring charges, say within a quarter or two after the transaction
closes to take account of facility consolidations or relocation of
manufacturing and the like? And is there any sizing on that at this point?
Ralph Faison: No. I think it's a little premature, Larry. We need obviously -
the organizations need to sit down and work through the requirements that
we both see and look at facilities around the world, across the product
lines and markets and evaluate what's going to be the best approach to
meeting the customers' requirements and the various products and in the
various parts of the world. So, we're going to get that done during this
interim transition period and be as ready as we
ANDREW / ALLEN CORPORATIONS INVESTMENT COMMUNITY CALL
1-15
can be at closing to say what's going to happen when and how much is it
going to cost and where will those costs go. From a timing standpoint,
where will the charges end up?
So, right now we're not able to make a reasonable estimate of that.
Certainly don't want to throw out a commitment until we've got more work
done.
Larry Harris: I understand. I understand. And just with respect to the in
building coverage and repeater areas, now that you'll be able to, I guess,
offer a complete set of different types of solution, would the RADIAX cable
perhaps more suited for tunnel applications for buildings, or is it really
going to be up to the customer or the application?
Philip Colburn: Yes. Certainly the application is going to dictate the right
product. But I think we're going to be in the ideal solution, where we're
not going to be having to sell against something that we're not able to
provide. If it's a solution that requires or the best approach is to use
the coax approach, then that's what would be used. Right now, of course, we
argue very strongly for the kinds of products that we would already have in
our own breadbasket.
Man: The most cost effective solution will win.
Larry Harris: Great. Great. All right. Well, thank you very much, and
congratulations once again.
Ralph Faison: Thanks, Larry.
Operator: And our next question comes from Mario Gabelli of Gabelli Asset
Management.
Mario Gabelli: Yes. Hi. Since I'm on the side of the bride or the groom, I don't
know which Paul and Phil thinks. And just a couple questions. You answered
operating synergies. You talked about some possible excess physical assets.
Can you talk about balance sheet synergies? I mean, I'm trying to put your
pro forma balance sheet together in my analysts that follows Andrews up.
Looks like you're going to have about a 165 million fully diluted share
after all this is done, including the call on the - assuming the converts
(got away).
Charles Nicholas: A hundred and fifty-three plus the converts.
Mario Gabelli: OK. So, about 165?
Charles Nicholas: Yes.
Mario Gabelli: How about walking down the rest of the balance sheet, like cash,
debt, extra - we've got GAAP book, but I don't know what that means in
today's world.
ANDREW / ALLEN CORPORATIONS INVESTMENT COMMUNITY CALL
1-16
Charles Nicholas: OK. Cash rise - of course, right now Andrew's cash - net cash
positive on a net debt basis and I think Allen at the end of the summer was
net debt of about $28 million. So, on a combined basis we're not seeing any
significant change or don't expect to see any significant change in our
ratios.
Mario Gabelli: How about ratings? Do you think you'll get a bump up from the
rating agencies because of the impact of the new size of the company and
the new EBITDAs of the combined companies?
Charles Nicholas: Yes, we certainly would, we believe, if we were rated. But we
are not rated, so we've not had a compelling economic reason to go through
that, Mario.
Mario Gabelli: And then a question for my (art) department. On the EU, just in
the sense if they review you, any particular issues that we should be
sensitive to and, secondly, in terms of the timing of the way they work? I
mean, you answered Hart-Scott-Rodino in the U.S., but EU.
Ralph Faison: The EU, Mario, tends to have bigger dollar amounts in terms of
where they are. And certainly certain countries have a little bit of unique
aspects. But in looking at it, the reality is we don't see the issue
popping up. Now, that doesn't mean that it won't be looked at, but once
they look through where the businesses really are, it doesn't appear to be
an issue.
Robert Paul: And there continue to be other players in each of the markets.
Mario Gabelli: So, in other words you're saying it'll be country by country,
like Germany as opposed to an EU issue in total?
Robert Paul: We haven't gotten far enough to a final analysis, but it's likely
to trip into some of the EU requirements. What they have, as Bob was
saying, a larger threshold what they really take a hard look at.
Mario Gabelli: Great. Now that you guys put Andrew and Allen together and got a
cubed synergies, what - as I look out and try to understand the Andrew
portfolio as I do Allen's, what would you like to add on it? Because you
have an extraordinarily strong balance sheet and a strong, good cash flow.
What's next if I was following Andrew for one period of time? And maybe
this is a bad time to do that.
Ralph Faison: Well, our strategy continues to be consolidation of what we call
the RF path or the RF footprint. And we do believe that we're now in the
premium position to be that leader. In addition, RF distribution - so, if
you look at emerging growth in technology in terms of our - what we refer
to
ANDREW / ALLEN CORPORATIONS INVESTMENT COMMUNITY CALL
1-17
as our in building, our extension of the public wireless area base into
hard to reach places. So, it's a $20 billion wireless infrastructure
market. And while we are pleased with the pro forma of 1.3, we think we
have a lot of room to grow still within this space. And, of course, when
the market does, and we're seeing some early signs that the market is about
to turn from its downturn of the last year to year-and-a-half, we think we
are very, very well positioned to ride that growth in a disproportionately
beneficial way.
Mario Gabelli: Well, thanks. I hope to come out and visit you guys soon.
Ralph Faison: We would welcome that.
Man: Thanks for calling, Mario.
Operator: And our next question comes from Sara Gallagher of Bear Stearns.
Sara Gallagher: My question's been answered. Thank you.
Operator: We'll move now to Nick Graziano of March Partners.
Nick Graziano: Hi. I was wondering if you could just spend a moment on the
background of the transaction and how it came about from the Allen side,
what prompted you to accept the bid.
Ralph Faison: I think the best person to answer that question might be Floyd
English and Bob and Phil Colburn. So, why don't I turn that to them?
Robert Paul: Floyd, why don't you start?
Floyd English: The long history of Andrew relationship with Allen Telecom,
including having previously owned some of the assets or a percentage of
them, back quite a few years ago. So, we've been following Allen and
staying in touch with them over the many years. It just makes a wonderful
combination. Phil?
Philip Colburn: Well, actually I think we first started talking to Andrew some
years ago. It's always been casual and the opportunities always seemed to
make an awful lot of sense. And we all each individually went off in
different directions for a while. And it was just the right time and the
right place and conversations took on much more meat at this time, and we
were able to successfully conclude something.
Floyd English: And, Phil, I might add it's always been friendly. That helps.
Philip Colburn: It probably took a new kid on the block to put his nose into it,
like Ralph, to make it happen.
ANDREW / ALLEN CORPORATIONS INVESTMENT COMMUNITY CALL
1-18
Robert Paul: It is such a strategically obvious union here that it's hard not to
see the value of it. But certainly our thesis of consolidation given the
state of the industry and where the cost pressures are certainly provide
the impetus to drive from a strategic standpoint to make all the sense in
the world of why you would do the transaction.
Man: It's nice to know when you're getting married that you're marrying another
company that's making profits.
Nick Graziano: Were there any discussions with any other parties?
Man: No.
Nick Graziano: Thank you.
Man: Thanks a lot.
Operator: And our next question comes from Drew Figdor of Tiedeman.
Drew Figdor: Yes. I just wanted to ask whether you - do the customer - one of my
concerns would be that you will have a number of people who are already
doing business with both parties. Do you expect to lose any customers? And
as part of the merger agreement is that a condition that you don't lose a
certain percentage of customers?
Ralph Faison: We only have - let me answer your last portion of your question
first. We only have standard closing conditions. There are no closing
conditions of that. We absolutely do not expect to lose any customers. In
fact, as I mentioned, we've already spoken to most of our large customers
this morning post-release. They have all responded very positively. If
anything, this is a extreme enhancement to the services we can provide to
our customers. So, we share a lot of the same customers. We will be seeking
synergies on how we approach those customers so that we don't have
post-integration here to Andrew people approaching for the same products.
So, we will be achieving some synergies in how we contact and manage the
accounts associated with our customers. But I would say if there are any
customers out there who are currently not buying either Allen or Andrew
products we'll be gaining some new customers.
Man: Ralph, in the two major products that Allen has Andrew doesn't sell.
Ralph Faison: Right.
Man: Geo-location and filters. So, even though we do have a minor one, it is
minor. So, that's complementary.
ANDREW / ALLEN CORPORATIONS INVESTMENT COMMUNITY CALL
1-19
Drew Figdor: You mentioned on the call the - I guess the percentages. I didn't
catch it. The bay station market share in the U.S. and the repeaters. What
was that again?
Ralph Faison: We did not mention any specific market share numbers. We don't
traditionally share those specific numbers. What we did talk about is the
number one market position in the products in which we had number one or
number two. With this transaction, we also achieve our strategic intent at
Andrew of being the number one or number two player in every major market
or product area in which we compete.
Man: Globally.
Ralph Faison: Globally, yes.
Drew Figdor: Thank you.
Operator: And our next question comes from John DeMasi of Coronation
International, Ltd.
John DeMasi: Hi. I don't know if you addressed this. Is due diligence complete?
Did you look under the hood of both companies?
Man: Yes. All our due diligence activities are complete and there are no,
again, non-customary closing conditions associated with due diligence.
John DeMasi: Right. And just in terms of market volatility, if Andrew stock were
to trade down dramatically because of the market or anything else, would
that be a cause for Allen being able to terminate the deal?
Man: Again, no non-customary closing conditions, nothing of that nature. And
please don't say that Andrew stock would ever trade down. That's an awful
thought.
John DeMasi: OK. Thanks very much.
Man: Thank you.
Operator: And our next question comes from Craig Naude of Shorewater Ltd.
Craig Naude: Good morning. Thank you and congratulations on what looks...
Ralph Faison: Thank you.
Craig Naude: ... as a very well structured deal. I wonder if you could just put
a little more light on the last question, please. You did answer my
question on due diligence. But I'm keen to know whether there are any
colors - any kind of a (floor) cap on the share price at all. It didn't
sound like it, but I just wanted to be clear.
ANDREW / ALLEN CORPORATIONS INVESTMENT COMMUNITY CALL
1-20
Ralph Faison: Well, this is a fixed exchange ratio transaction. As a result,
there are no floors, collars, et cetera.
Craig Naude: OK. Good. That's what I thought. Thanks very much, gentlemen, and
good luck.
Operator: And we have one question remaining in our queue. If you would like to
ask a question, please press star one at this time. And Walter Schenker of
Titan Capital Management has our next question.
Walter Schenker: Thank you. Most of them have been answered. But is there any
lock up on this?
Ralph Faison: How are you, Walter?
Walter Schenker: Good, thank you.
Ralph Faison: Yes. Again, really only customary. And I'm not sure - different
people have used the term lock up differently. It has the standard
provisions that would be in a public-to-public transaction.
Man: Fiduciary responsibility, that type of thing in terms of the boards. But,
no, there is no collars, no floors, no walk aways, no lock ups.
Walter Schenker: And since everything is customary, I know that an 8-K is going
to be filed today. Will the terms of the deal more specifically be in that?
Or when would you expect to have all of these normal and customary terms
released?
Man: The 8-Ks that will be filed today will include just the press releases that
went out, which is the standard form for filing the 8-K, and the rest of
the terms would probably be disclosed at some point over the next future
days and weeks, particularly when we get into the proxy solicitation
materials.
Man: Right. I think that's the first detail material that'll be published will
be the distribution of the proxy.
Walter Schenker: OK. Thank you, all, and congratulations again.
Man: Thank, Walter.
Man: Thank you.
Operator: And we'll take our next question from Ted Moreau of Robert W. Baird.
Ted Moreau: Yes. Good morning.
Man: Are we going to see you tomorrow?
Ted Moreau: Yes.
Man: OK.
ANDREW / ALLEN CORPORATIONS INVESTMENT COMMUNITY CALL
1-21
Ted Moreau: We're still on, I presume.
Man: Yes, we are.
Man: Sure.
Ted Moreau: I guess just kind of an overall overview question and probably for
either Ralph or Bob Paul, I suppose. But clearly the driver here has been
what you refer to as the integration of the RF path and the power amps and
the filters, et cetera. What - number one, what do you foresee in terms of
overall wireless spending here over the next couple years? And I presume
that the RF path in a more difficult environment will be increasing as a
part of that spend and will likely to be growing in let's say a flat to
declining wireless cap ex environment. Is that pretty much how you see
things? And can you quantify that at all?
Man: Yes. Ted, in terms of kind of the macro drivers here, the things we look
at, number one, we see continued subscriber growth, the number of
subscribers being signed up. Number two, we see the minutes of use
associated with subscribers to continue to grow, therefore putting a lot of
pressure on the wireless infrastructure network. So, while there has been a
reduced capital spend in '02, we fully and firmly believe that that has to
turn about. We are seeing some early signs - I would just say early signs
that that may have reached its bottom. So, in terms of our overall
perspective is while overall wireless spending is and has been down, we
think the portion to be spent on the RF footprint, because of this pressure
on the net with the continued subscriber ads and then its abuse, is
increasing. So, for instance, recently in the last couple of weeks Verizon
talked about an additional 4.7 billion spend on their wireless
infrastructure. AT&T Wireless talked about more proportion of their - a
larger proportion of their overall spend to be dedicated to what we refer
to as the footprint, that is, the bay station sites for network capacity.
So, we start to see that trend changing and we see the pressure on the
network and the pressure for greater service and service coverage pushing
more spend, particularly in the direct area that we provide.
Ted Moreau: So, the - even though some of the subscriber office line and some
of the carriers, not all of them, probably because of various promotions
and pricing plans and market share issue ...
Man: Sure. Even though you see it slowing, what I would say on a much larger
scale - so, for instance if we look at global subscriber growth between now
and 2006 we project - and based on numbers from you and other fine analysts
throughout the industry, we project that the subscriber growth
ANDREW / ALLEN CORPORATIONS INVESTMENT COMMUNITY CALL
1-22
between now and '06 would add about 500 million additional subscribers. So,
taking it from a roughly a billion worldwide today to 1.5 billion by '06.
While the percentage is declining, it's on a much larger base. Therefore,
the kind of growth we would expect would be very nice.
Man: And look at the minutes of use. That's really the key on the capacity
demands on the network.
Man: And so, that - minutes of use is more than doubling between now and 2005.
Man: Whether it's coming from a new subscriber or existing subscriber makes no
difference.
Ted Moreau: So, we should be looking at bay stations and capacity and the RF
path and the footprint here as a percent of overall cap ex and on both the
relative and then absolute basis? And that should grow even in this kind of
environment?
Man: Yes. That's our expectation. The needs of the network clearly are having to
deal with this capacity issue.
Man: We know that some of the spending, for example, in our domestic market in
the last year has been on some software applications, but at this point in
time there seems to be at least some of the carriers we emphasize in the
actual infrastructure in the RF path because they do need to get more
capacity out there for the increasing overall minutes of use.
Ted Moreau: Right.
Man: And, of course, all of the new data applications are increasing the minutes
of use and the - it's tying up the network.
Ted Moreau: Right. So, clearly that was the motivation on the transaction, I
would presume.
Man: Well ...
Man: I think that we love the market we're in, so that would be motivation for
both companies to continue to love that market. But, number two, again, as
we mentioned before, strategically consolidating that RF path and filling
in the product - and product and category holes to the efficiency and the
overall thesis that we've been operating under of consolidation of our
industry for better scale, better efficiency in terms of cost performance
as well.
Ted Moreau: Great. Thank you very much.
Man: Thanks a lot, Ted.
Man: OK. Thanks, Ted.
ANDREW / ALLEN CORPORATIONS INVESTMENT COMMUNITY CALL
1-23
Operator: And that's all the time we have for questions. I'll turn the
conference back over to you, Mr. Nicholas, for any additional or closing
remarks.
Charles Nicholas: I think actually Ralph's going to close it off for us here.
Ralph Faison: Yes. Thank you, operator. And let me just end by thanking all of
you for participating in the call, number one, and your interest in the
transaction. We are, hopefully you can tell, extremely excited about this.
It makes all an absolute sense within the market where it is today. I'm
looking very forward to working with the Allen team, the talent that will
be coming from there, and personally looking forward to working with Bob
and Phil as we integrate seamlessly and successfully the Andrew and Allen
teams to a bigger, better and more efficient Andrew Corporation.
So, thank you for the call.
Operator: And that concludes today's conference call. Thank you, everyone, for
your participation.
END
ADDITIONAL INFORMATION AND WHERE TO FIND IT
Andrew intends to file a registration statement on Form S-4 in connection with
the transaction, and Andrew and Allen intend to mail a joint proxy
statement/prospectus to their respective stockholders in connection with the
transaction. Investors and security holders of Andrew and Allen are urged to
read the joint proxy statement/prospectus when it becomes available because it
will contain important information about Andrew, Allen and the transaction.
Investors and security holders may obtain a free copy of the joint proxy
statement/prospectus (when it is available) as well as other documents filed by
Andrew and Allen with the SEC at the SEC's web site at www.sec.gov. A free copy
of the joint proxy statement/prospectus and such other documents may also be
obtained from Andrew or Allen. Andrew and its executive officers and directors
may be deemed to be participants in the solicitation of proxies from the
stockholders of Andrew and Allen in favor of the transaction. Information
regarding the interests of Andrew's officers and directors in the transaction
will be included in the joint proxy statement/prospectus. Allen and its
executive officers and directors may be deemed to be participants in the
solicitation of proxies from the stockholders of Andrew and Allen in favor of
the transaction. Information regarding the interests of Allen's officers and
directors in the transaction will be included in the joint proxy
statement/prospectus.
SAFE HARBOR STATEMENT
Some of the statements in this document are forward looking statements and we
caution our stockholders and others that these statements involve certain risks
and uncertainties. Factors that may cause actual results to differ from expected
results include the companies' ability to consummate and integrate this
acquisition and to realize the synergies and cost savings anticipated from this
transaction, the effects of competitive products and pricing, economic and
political conditions that may impact customers' ability to fund purchases of our
products and services, the companies' ability to achieve the cost savings
anticipated from cost reduction programs, fluctuations in international exchange
rates, the timing of cash payments and receipts, end user demands for wireless
communication services, and other business factors. Investors should also review
other risks and uncertainties discussed in company documents filed with the
Securities and Exchange Commission.
# # #