Filtronic Plc Acquisition

30th Jul 2010 07:00

TIDMFTC RNS Number : 2117Q Filtronic PLC 30 July 2010 ? Filtronic plc ("Filtronic" or the "Company") Proposed acquisition of Wireless Infrastructure Business of Isotek Filtronic, the designer and manufacturer of microwave electronics products for the wireless telecoms backhaul infrastructure market, is pleased to announce that it has today entered into an agreement ("Agreement") governing the terms of the proposed offer for the entire issued share capital of Isotek (Holdings) Limited ("Isotek")("Acquisition"). Isotek develops and markets leading-edge telecommunications products for a range of wireless infrastructure applications. The Acquisition, which will be made by way of offer under Part 28 of the Companies Act 2006 ("Offer"), has highlights as follows: Strategic · Furthers Filtronic's strategy to create a differentiated, high growth, wireless business through organic growth and selective acquisition · Provides entry to customised niche market for high added value base station filters · Offers identified growth potential to transform the scale of Filtronic's business · Acquires innovative new IP to capitalise on very strong growth of 3G/4G related mobile data traffic · Creates a combined business of attractive scale to key customers Financial · Deal expected to be earnings enhancing in year to 31 May 2012 ("FY12") · Expected to increase FY12 turnover by circa GBP15m · Consideration of GBP4.35 million cash plus 18,550,000 new Filtronic shares (subject to working capital and other adjustments) · GBP10.7 million implied consideration based on closing price of 34.25p at 29 July 2010 · Shares represent circa 20 per cent of enlarged share capital, and will be subject to lock-ins Chairman Howard Ford said "This is a transformational deal for both companies which will be attractive to all stakeholders." Enquiries: +--------------------------------+--------------------------------+ | Filtronic plc | Tel. 01325 301111 | +--------------------------------+--------------------------------+ | Howard Ford, Chairman | | +--------------------------------+--------------------------------+ | Hemant Mardia, CEO | | +--------------------------------+--------------------------------+ | Mike Brennan, CFO | | +--------------------------------+--------------------------------+ | | | +--------------------------------+--------------------------------+ | Panmure Gordon (UK) Limited | Tel. 020 7459 3600 | +--------------------------------+--------------------------------+ | Dominic Morley | | +--------------------------------+--------------------------------+ | Stuart Gledhill | | +--------------------------------+--------------------------------+ | | | +--------------------------------+--------------------------------+ | Walbrook PR Ltd | Tel. 020 7933 8787 | +--------------------------------+--------------------------------+ | Paul McManus | Mob. 07980 541 893 | +--------------------------------+--------------------------------+ | | [email protected] | +--------------------------------+--------------------------------+ Background On 16 October 2006, Filtronic announced that it had completed the disposal of the majority of its Wireless Infrastructure division business, comprising transmit /receive filters, integrated remote radio heads and power amplifier products, all for use in commercial wireless infrastructure base station equipment, for shares and cash then worth $298 million. The market for these products had at that time reached a stage of relative maturity driven by increasing commoditisation of product and margin pressure. As part of the disposal, Filtronic entered into covenants including one not to compete with the business sold for a 3 year period. Following expiration of this restrictive covenant, Filtronic has evaluated opportunities to transform the range and size of its business by re-entering the base station market and, in so doing, to leverage its OEM position, established reputation and scale in the wireless telecoms market. Isotek is a leading developer and marketer of wireless telecommunications products. It is run and owned primarily by members of Filtronic's former senior management, who had previously delivered the successful growth of Filtronic's world leading Wireless Infrastructure business from start up and through flotation. Alan Needle (formerly the CEO of Filtronic's wireless infrastructure business and formerly an executive director of Filtronic), and Dr Christopher Mobbs (former executive director and former CTO of Filtronic) will continue to run this business segment under the proposed acquisition. Professor David Rhodes (Filtronic's founder and a former CEO) will have an honorary position providing external technical consultancy to the business segment. Isotek has made significant investments in innovative new technology, resulting in the creation of new IP, which Filtronic believes provides Isotek with a significant competitive advantage. Market The mobile wireless network consists of a large number of base station sites throughout a given region. These base stations communicate with mobile phones, PDA's and portable computers connecting a subscriber into the system. For example, in the UK there are four major mobile operators, each of which may have tens of thousands of base stations with the majority located in the large urban areas and major trunk routes. Each operator has bought one or more licences to use a specific frequency band within which they are allowed to transmit and receive RF signals and are not allowed to cause interference outside the frequency band that they operate in. The need to avoid interference requires a portion of the valuable licensed band to be consumed as a buffer against adjacent users. As use of spectrum intensifies, this is leading to demand for products improving spectrum utilisation. The move to rapidly overlay 3G and 4G data services with differing protocols onto existing 2G voice networks also sets new challenges for network upgrades by operators to be delivered without disruption. In order to speed the rollout of new services, whilst minimising costs, it is important to optimise spectrum utilisation across the network of existing base station sites. Furthermore, as additional frequency bands are released for mobile use, the proximity of existing systems such as high power digital TV broadcast will require increasingly technically complex combining and interference mitigation solutions. Strong growth of data traffic globally presents mobile operators with a pressing need to address these challenging service issues, which in turn creates new opportunities for mobile infrastructure equipment providers such as Isotek and Filtronic. Isotek's advanced filter solutions enable the use of existing mobile spectrum to be enhanced significantly whilst inserting new services and eliminating interference, offering more usable channels and extra capacity at an economic cost. The Directors believe that there is a significant worldwide addressable market for base station filters, estimated (by a Filtronic commissioned external consultant's report) to total around GBP370 million in 2012 and that this market will show rapid growth over the next few years driven by the adoption of 4G services. This provides a long-term opportunity for continuing growth in this market, focused on the customisation of technically advanced products. Isotek business Isotek develops and markets leading-edge telecommunications products for a range of wireless infrastructure applications. These products, comprising innovative filters and combiners, enable operators to use their existing 2G infrastructure also to deliver 3G and 4G services simultaneously, with a minimum of switch-over downtime. This can bring significant cost savings by eliminating the need to upgrade or replicate network infrastructure in some cases, as well as improving the use of the available spectrum. These products are typically highly customised by Isotek's engineering teams according to the local requirements of specific OEMs or operators, and offer significant cost and performance advantages over alternative products. Isotek has developed proprietary software to design and model the performance of its products. The Directors believe that Isotek is strongly positioned to take advantage of opportunities requiring such technical sophistication. Isotek currently has 28 employees, including a 16 strong engineering team, based in the UK, in the United States, and in China. Products are being manufactured by a subcontract manufacturer in China at competitive cost and on favourable credit terms. Over the last three years, Isotek has made a series of patent applications covering the filter and combiner technology used in its products. Based on discussions with customers with major potential, the Directors believe that Isotek's products solve key technical challenges and offer significant benefits over alternatives. Traction is now being achieved with key customers (MORE TO FOLLOW) Dow Jones Newswires July 30, 2010 02:00 ET (06:00 GMT)