TE Connectivity to Acquire Deutsch
November 29, 2011
TE Connectivity to Acquire Deutsch
November 29, 2011
Page 2
November 29, 2011
Forward-Looking Statements
This presentation contains certain “forward-looking statements” within the meaning of the United States Private
Securities Litigation Reform Act of 1995. These statements are based on management’s current expectations and are
subject to risks, uncertainty and changes in circumstances, which may cause actual results, performance, financial
condition or achievements to differ materially from anticipated results, performance, financial condition or achievements.
All statements contained herein that are not clearly historical in nature are forward-looking and the words “anticipate,”
“believe,” “expect,” “estimate,” “plan,” and similar expressions are generally intended to identify forward-looking
statements. We have no intention and are under no obligation to update or alter (and expressly disclaim any such
intention or obligation to do so) our forward-looking statements whether as a result of new information, future events or
otherwise, except to the extent required by law. In addition to our future financial condition and operating results, the
forward-looking statements in this presentation include statements addressing our ability to execute an acquisition
agreement to acquire Deutsch (the “Deutsch Acquisition”), our ability to fund and consummate the Deutsch Acquisition,
including the entry into financing arrangements and the receipt of regulatory approvals; and our ability to realize
projected financial impacts of and to integrate the Deutsch Acquisition. Examples of factors that could cause actual
results to differ materially from those described in the forward-looking statements include, among others, the risk that the
execution of an acquisition agreement to purchase Deutsch and to close the Deutsch Acquisition may not be
consummated; the risk that a regulatory approval that may be required for the Deutsch Acquisition is not obtained or is
obtained subject to conditions that are not anticipated; the risk that revenue opportunities, cost savings and other
anticipated synergies from the Deutsch Acquisition may not be fully realized or may take longer to realize than expected;
the risk that Deutsch’s operations will not be successfully integrated into ours; business, economic, competitive and
regulatory risks, such as conditions affecting demand for products, particularly the automotive industry and the
telecommunications, computer and consumer electronics industries; competition and pricing pressure; fluctuations in
foreign currency exchange rates and commodity prices; natural disasters and political, economic and military instability in
countries in which we operate; developments in the credit markets; future goodwill impairment; compliance with current
and future environmental and other laws and regulations; and the possible effects on us of changes in tax laws, tax
treaties and other legislation. More detailed information about these and other factors is set forth in our Annual Report on
Form 10-K for the fiscal year ended Sept. 30, 2011 as well as in our Current Reports on Form 8-K and other reports filed
by us with the U.S. Securities and Exchange Commission.
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November 29, 2011
Acquisition Overview
Best-in-class connectivity for
harsh environments
Strong customer relationships
73 year proven history of high-
quality products
~80% of products are custom
Estimated 2011 revenues of
$670 million, EBITDA of ~26%
• TE has entered into exclusive negotiations and made a
binding offer valued at €1.55 billion to acquire Deutsch
from the Wendel Group
• Expands our capability to offer a complete range of
connectivity solutions across all major industries,
applications and regions
• Deutsch brings a range of highly-engineered, custom
connectivity solutions for harsh environment applications
¾
Adds key circular connector product line
• Provides higher-margin complementary products for
applications in long-cycle industries with strong secular
trends
¾
Commercial aerospace growth
¾
Increase in emissions standards globally
• Significant value expected for shareholders with revenue
and tax synergies as well as operational efficiencies
Page 4
November 29, 2011
Deutsch Overview
Key
Metrics
Key
Products
Deutsch is a leading supplier of interconnect products for harsh environments.
Segments include industrial transportation, commercial aerospace, military, rail and offshore oil and gas.
Deutsch was founded in 1938 and is owned by the Wendel Group.
Overview
Circular connectors (aluminum, nickel plated, screw locking, environmentally sealed, hermetically sealed,
water tight, fiber optic, microwave)
Rectangular connectors (thermoplastic, hermetically sealed, environmentally sealed, composite, latching)
Splitter boxes (controller area network, environmentally sealed, bayonet locking)
•
2011 Estimated Financials:
– Revenue ~$670 million
– EBITDA ~26% of sales
•
Employees: ~3,600
•
Manufacturing Facilities:
– U.S.
– France
– China
– Mexico
– India
– U.K.
Asia
7%
North
America
48%
EMEA
45%
% of Sales By Region
Offshore 2%
Industrial
Transportation
58%
Aerospace
22%
% of Sales By Application
Military
16%
Rail 2%
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November 29, 2011
Fills Key Product Gaps
Expands Our Portfolio for Harsh Environments
Expands Our Portfolio for Harsh Environments
TE
Segment
Transportation Solutions
Communications &
Industrial Solutions
Industry
Aerospace & Defense
Industrial Transportation
Industrial Equipment
Application
Commercial
Aerospace Military Offshore
Truck Agriculture Construction
Mining, Water
Rail MEFA Nuclear
5-year
CAGR
~6%
~6%
~5%
Deutsch‘s
Revenue
~$250M
~$400M
~$20M
Strategic
Benefit of
Acquisition
• Adds circular connector
products
• Leading positions in new
commercial air platforms
• An entry into offshore oil & gas
connectivity
• Complementary products create
a leader in commercial vehicles
• A full product portfolio to address
faster-growing emerging markets
• Expands existing portfolio with
addition of circular connector
products
• Optimize TE OEM and channel
partners to increase penetration
of Deutsch products
Page 6
November 29, 2011
Industrial Transportation Applications
Engine Control Unit
1
Engine / Sensor connectors
2
1
2
3
4
Agriculture Vehicles
1
3
4
2
Construction Equipment
1
2
3
4
Heavy Trucks
Chassis / in-line connectors
3
Bulkhead connectors
4
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November 29, 2011
Engine
Aerospace and Defense Applications
1
Airframe
2
Avionics
3
Landing gear
4
1
2
4
Commercial Aircraft
Military Aircraft
1
2
3
Helicopters
Weapon systems
5
1
3
5
2
3
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November 29, 2011
Marine and Offshore Applications
Topside
2
Subsea equipment
4
Down-hole
5
Tree
3
1
3
5
2
4
4
Seismic
1
Page 9
November 29, 2011
Transaction Summary
Enterprise
Value
• €1.55 billion
¾
~$2.06 billion at current exchange rates
¾
“Effective” net purchase price of ~$1.8 billion (~$250 million of NPV
related to tax attributes and synergies)
Financing
• Expect ~50% cash and ~50% new debt
• Expect to pay off existing TE debt of ~$700 million at maturity in FY 2013
Tax
• Expect ~10% cash tax rate
• Drives ~$250 million of value on an NPV basis
Return
• Expect ROIC of ~11% in FY 2015
Accretion
• Expect ~$0.20 accretion in FY 2013, excluding one-time costs
• Expect one-time cash costs of ~$75 million
Timing
• Expected to close by fiscal Q3 2012, contingent upon completion of
customary regulatory clearances
TE’s binding offer is subject to customary regulatory approvals including consultation by Deutsch with the Workers' Council, which
is required under French law
Page 10
November 29, 2011
Target
Today
Organic Sales CAGR
Organic Sales CAGR
Today
Synergies
•
Leverage of combined global supply chain
– TEOA / Lean
– Purchasing
•
Optimize go-to-market and G&A
Operating
Efficiencies
•
Expand Deutsch product sales through
TE’s customer base
•
Expand TE’s product sales through
Deutsch’s customer base
•
Complementary technologies provide
better solutions for our customers
•
Expand penetration in emerging markets
Organic Sales CAGR
~6%
8-10%+
Target
~26%
>30%
Today
EBITDA
Revenue
Expect ~$0.20 of Accretion in FY2013
Expect ~$0.20 of Accretion in FY2013
Page 11
November 29, 2011
Summary
• The proposed acquisition of Deutsch and its products for harsh
environment applications is complementary to TE’s existing
portfolio and expands our capability to offer a complete range
of connectivity solutions
• TE’s customer base, geographic presence, and sales and
engineering strength is expected to drive growth for Deutsch
products at 8-10%+ annually
• Significant value expected for shareholders with increased
growth, operating efficiencies and tax synergies
¾
Synergies to drive EBITDA >30%
¾
FY2013 Accretion to adjusted EPS of ~ $0.20 per share
¾
ROIC above cost of capital in year 3
Page 12
November 29, 2011
Non-GAAP Measures
The forecasted earnings per share amount, as adjusted, that is set forth in this presentation is a non-GAAP (U.S.
generally accepted accounting principles) measure and should not be considered a replacement for GAAP results. The
company uses diluted earnings per share from continuing operations attributable to TE Connectivity Ltd. before special
items, including charges or income related to legal settlements and reserves, restructuring and other charges, acquisition
related charges, tax sharing income related to certain proposed adjustments to prior period tax returns and other tax
items, certain significant special tax items and, if applicable, related tax effects ("Adjusted Earnings Per Share" or
"Adjusted EPS"). We use Adjusted EPS because we believe that it is appropriate for investors to consider results
excluding these items in addition to results in accordance with GAAP. We believe such a measure provides a picture of
our results that is more comparable among periods since it excludes the impact of special items, which may recur, but
tend to be irregular as to timing, thereby making comparisons between periods more difficult. It also is a significant
component in our incentive compensation plans. The limitation of this measure is that it excludes the financial impact of
items that would otherwise either increase or decrease our reported results. This limitation is best addressed by using
Adjusted Earnings Per Share in combination with diluted earnings per share from continuing operations attributable to TE
Connectivity Ltd. (the most comparable GAAP measure) in order to better understand the amounts, character and
impact of any increase or decrease on reported results.
The forecasted EBITDA margin amount for Deutsch that is set forth in this presentation is a non-GAAP measure and
should not be considered a replacement for GAAP results. EBITDA represents net income before interest expense,
interest income, income taxes, depreciation and amortization. EBITDA is not intended to represent Deutsch’s results of
operations in accordance with GAAP and should not be considered a substitute for net income or any other operating
measure prepared in accordance with GAAP.
Because we do not predict the amount and timing of special items that might occur in the future, and our forecasts are
developed at a level of detail different than that used to prepare GAAP-based financial measures, we do not provide
reconciliations to GAAP of our forward-looking financial measures.