May 20 2010
Tii Network Technologies, Inc. (Nasdaq: TIII), a leader in designing, manufacturing and marketing network products for the communications industry, today announced it has completed the acquisition of all of the assets and assumed certain operating obligations, primarily accounts payable, of the Copper Products Division ("CPD") of Porta Systems Corp. ("Porta") for cash of $8.2 million.
The acquisition was paid for out of the Company's available cash on hand.
Included as part of the assets acquired are subsidiaries in the United Kingdom and Mexico. Concurrent with this acquisition, Tii sold, for $1.0 million in cash, a majority interest in the Mexican operations to its principal contract manufacturer who will operate this manufacturing facility. Tii will be paid an additional $1.5 million from its contract manufacturer for raw materials at the facility as these materials are used in production.
Porta Systems, headquartered on Long Island, is a globally recognized business that designs and manufactures surge protection modules, connectivity blocks and housings for the telecommunications industry. The addition of the Porta CPD product line expands Tii's offerings in the outside plant, central office and customer premise market sectors with the addition of remote terminal equipment, five pin protection modules and building entrance products.
The 2010 annual sales for the CPD are estimated to be approximately $25 million and it is expected that Tii's sales will now exceed $55 million on an annualized basis. Tii has hired 13 of Porta's employees consisting primarily of engineers and sales personnel. The acquisition is expected to be accretive to earnings beginning in the third quarter of 2010.
Kenneth A. Paladino, President and Chief Executive Officer, stated "This is a great acquisition for Tii, marking an exciting new era for our company. We have significantly increased our sales level, expanded into key markets and acquired new products and technology that will accelerate our strategy of becoming a significant competitor in the global telecommunications equipment marketplace.
"This acquisition demonstrates Tii's commitment to our customers of providing new and innovative copper based products to support the demands of our customers' networks, in addition to our emerging fiber product lines. Tii's 45 years of telecommunications industry experience, combined with Porta's 40 year history, positions our company to be the world-class leader in network connectivity solutions.
"The key strategic benefits of this acquisition include:
- Porta Systems is a well recognized international brand, and generates significant revenue outside the United States through its strong sales channels into both the UK and Mexico, which represent large potential markets for Tii. We will now be able to leverage our financial resources, existing products and technical expertise to expand sales through these important new channels.
- The acquired products expand our current connectivity and protection product lines and will allow us to significantly increase our Central Office product offerings and enter several new market segments including remote access cabinets and the domestic building entrance terminal markets. The CPD's products are complementary and should provide numerous cross selling opportunities into both new and existing sales channels for both product lines.
- With the addition of two new significant international customers, we diversify our revenue stream, both in terms of customers and geography, thereby decreasing our historical concentration of sales to primarily one domestic customer."
Mr. Paladino went on to say, "One of the key aspects to the success of this acquisition will be our ability to execute our plans with our manufacturing partner to improve the margins of these new product lines. We believe that, although these products have had a lower gross margin and will initially negatively impact our overall gross margin as a percent of sales, this acquisition will be accretive to our earnings beginning in the third quarter of 2010 and will contribute to the profitable growth of our company."