By Heather Klotz, SDM Associate Editor, with contributions from SDM Editor Laura Stepanek and Security Magazine Editor Emeritus Bill Zalud
The deal is not yet final. It is subject to customary regulatory conditions, including clearance under the Hart-Scott-Rodino Act and the approval of Broadview shareholders. It is expected to be completed in the second half of Tyco's fiscal year, which began on September 26, 2009.
Since the announcement, the questions and speculation surrounding the deal have exploded – along with Broadview’s stock, which climbed to a new 52-week high at $41.54. Tyco’s stock also rose, up 65 cents, or 1.7 percent, to $38.19.
ADT’s market share climbed as well, as the purchase will increase its 4.8 million account base to 6.1 million. Add Broadview’s four percent market share to ADT’s current (estimated) 20-22 percent, and ADT now owns a quarter of the North American security services market.
And that’s where the speculation starts. IMS Research released an estimate that Tyco International and its security business ADT – after the acquisition – would account for more than half of the residential alarm monitoring services market in North America. An IMS analyst also commented in its release that “IMS Research estimates that ADT will command a market share more than ten times the size of its nearest competitor in the North American market.”
Phrases like “more than half’ and “ten times the size of its nearest competitor” bring up regulatory approval questions in a hurry, but Tyco and Broadview were quick to deny the claims in a conference call held with members of the security industry press Tuesday afternoon.
In the days following the recent announcement, IMS Research clarified its previous statement.
"From the customers’ point of view, the residential alarm monitoring market will remain fairly fragmented despite this acquisition. There are thousands of independent alarm dealers in North America using third party central stations to monitor their customers. When these independent dealers are included in the analysis, ADT and Broadview Security account for only around 30% of the residential alarm monitoring market. Their market share is further reduced if the commercial alarm monitoring market is also considered." Niall Jenkins, research analyst at IMS Research commented, “Despite the economic situation, the US alarm monitoring market has continued to perform reasonably well with low single digit growth in 2009. The market offers long term growth potential and we expect more acquisitions to follow in the coming years.”
But no matter how the market share numbers fall into place after the acquisition, there is no doubt that ADT/Broadview will stand very tall above its competitors..
The company noted that there can be no assurance that this review of strategic alternatives will result in Protection One pursuing any transaction, or that any transaction pursued by the Company will be completed. Protection One does not anticipate making any further public comment regarding its process until and unless a definitive agreement on a transaction is reached, and no assurance can be given that such an agreement will be entered into.
Back at the editors’ conference call with Broadview, Tyco, and ADT officials, they took on many other questions – but didn’t offer many concrete answers, as both companies stated that the “integration planning,” which will provide many of the answers, has not yet begun. When asked questions such as where the operations for the combined companies would take place, how the company would deal with overlapping dealers in the ADT and Broadview dealer programs, and how ADT’s monitoring stations would be reconciled with Broadview’s monitoring stations, Gursahaney, commented that “at this point in time we are very, very early in our integration planning…We are putting together a very rigorous and analytical integration approach where we will be evaluating the business process on both sides of ADT and the Broadview side to find the best of breed and adopt those all on a national basis and isolate some areas where there may be some opportunities.”
The short version? There’s a lot of change coming, but none of it is laid out for others in the industry, Wall Street or the public yet. Time will tell how the final integration will look, and the effect it will have on the industry, and whether any obstacles will stand in the way of the acquisition’s final approval.
A hint emerged from remarked by Tyco International’s head executive. Chairman Edward Breen was quoted in The Philadelphia Inquirer today that the Princeton-based conglomerate's first billion-dollar-plus acquisition in a decade doesn't mean it's back to 1990s merger mania. "We really haven't said the word acquisition around Tyco for the 7 1/2 years I've been here," Breen told investors, as reported by Inquirer staff writer Joseph DiStefano. Breen was alluding to the financial trouble Tyco faced with significant losses, a tumbling share price and increasing debt when he assumed control in 2002.
A handful of years later and during a period of asset sales, Breen broke up the conglomerate into three, with Tyco International holding mostly the fire, safe and security properties.
In an investors’ call before the security industry editors’ conference call, Breen suggested there will be changes after the acquisition’s closing – cuts of $150 million from its workforce and reduction in other yearly expenses.
"We're not looking at any other acquisition that would be of this size," Breen told Citigroup analyst Jeffrey Sprague, who asked if Tyco could afford more big buys. But he did suggest there may be acquisition possibilities “in the $300 to $500 million range to enhance our platforms.”
One twist already surfacing in the Tyco/ADT/Broadview activity involves what stockholders on the Broadview side may think of the deal. And there are already three legal firms specializing in corporate malfeasance and class action sniffing out the angles.
One example: Emerson Poynter LLP, a national law firm with offices in Little Rock, Ark., and Houston, issued a business news wire announcement that it launched what the firm calls “an investigation” into possible breaches of fiduciary duty and other violations of state law by members of the Board of Directors of Broadview. Emerson Poynter said its action centers on “Broadview's Board of Directors' acceptance and recommendation of the offer was fair and designed to secure the best possible value for all shareholders of Broadview.”
Such actions aside, which are fairly routine fishing expeditions in large publicly-traded company acquisitions, it is apparent from an investors’ briefing and the security industry press conference that ADT and Broadview both seem very happy with the deal.
“I am personally very excited about this deal,” said Gursahaney. “I think Broadview is an excellent strategic fit with ADT’s residential and small business operations in North America. Our product and service offerings are very complementary and this combination should allow us to better service our customers in this very fragmented and competitive industry.”
Bob Allen, president and chief executive officer of Broadview, was confident about the positive outcome the transaction would have for both companies. “We will continue to achieve great success in this new organization under the ADT brand,” said Allen. "Both of our companies have strong marketing and sales organizations and offer complementary products and services, and we are both dedicated to providing superior services to customers. I am convinced that the combination of these two businesses will result in even further success for us both.”
The latest SDM 100 is at http://www.sdmmag.com/CDA/Articles/sdm100
Comments? Tweet at http://twitter.com/sdmmagazine