TE Connectivity Ltd. (TEL - Free Report) announced that it has agreed to sell subsea communications business (SubCom) in order to focus on high-growth areas.
Terms of the Agreement
The company will sell SubCom business to a private-equity firm, Cerberus Capital Management, L.P. for $325 million in cash. The transaction is expected to close by the end of the fiscal first quarter of 2019, following the completion of customary closing conditions.
The proceeds from this deal will be used to fund share repurchases. The basic aim behind the divestiture is to focus more on strengthening industrial technologies, achieving sustainable and profitable growth, along with higher margins in the near future.
Over the past year, the company has slightly underperformed the industry it belongs to. Shares of TE Connectivity have gained 11.2% compared with the industry’s growth of 12% in the said period.
Of late, TE Connectivity is redirecting its focus on core areas of growth, and the above-mentioned divestiture is a step taken in the same direction.
SubCom business was part of TE Connectivity’s Communications Solutions segment. The business remained sluggish since the last year. In fiscal third quarter, the Communications Solutions segment decreased 4.7% year over year, due to a fall in SubCom revenues.
Though the company said that SubCom business was expected to generate sales of $700 million in fiscal 2018, the contribution to TE Connectivity’s profits would be minimal.
Therefore, it appears that the company’s decision to sell the business has come at the right time. The company can now focus on important growth areas to further solidify its industrial technology position.
TE Connectivity CEO, Terrence Curtin said, “We are pleased that with this transaction we increase our focus as a leading industrial technology company. It strengthens our business model; resulting in a stronger growth profile, reduced cyclicality, higher margins, and a greater return on investment”.
Zacks Rank & Stocks to Consider
TE Connectivity currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry include Infineon Technologies AG (IFNNY - Free Report) , ON Semiconductor Corporation (ON - Free Report) and Rambus Inc. (RMBS - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Long-term earnings growth for Infineon Technologies, ON Semiconductor and Rambus is currently projected to be 7.5%, 13.2% and 10%, respectively.
5 Companies Verge on Apple-Like Run
Did you miss Apple's 9X stock explosion after they launched their iPhone in 2007? Now 2018 looks to be a pivotal year to get in on another emerging technology expected to rock the market. Demand could soar from almost nothing to $42 billion by 2025. Reports suggest it could save 10 million lives per decade which could in turn save $200 billion in U.S. healthcare costs. A bonus Zacks Special Report names this breakthrough and the 5 best stocks to exploit it. Like Apple in 2007, these companies are already strong and coiling for potential mega-gains.
Click to see them right now >>