Cramer's Telecom Build-Out Play, With After-Hours Weakness (ADCT)

On tonight’s MAD MONEY on CNBC, Jim Cramer already hosted Verizon’s CEO Seidenberg and discussed the bandwidth build-outs and the great things going on in wireless and their FiOS digital TV offering.  Cramer wanted to use his pin action trade analysis and he went back to one of the old tech stocks from the 1990’s:

• ADC Telecom (NASDAQ:ADCT) is a stock that is winning from the fiber and wireless build-out of Verizon.  This is also part of AT&T’s long-distance build-out that is going.  It also bought a frame connectivity company in China and made another wireless acquisition.  ADCT also trades 14.6-times next year’s earnings.  Cramer thinks this one is back in the sweet spot and he said it can be held for a multi-year period.

What is a pure coincidence is that shortly before Cramer started MAD MONEY tonight, ADCT came out and announced a proposed subordinated convertible note offering to the tune of $400 million split evenly between 2015 and 2017 maturity dates.  Its market cap before the dilution was listed as almost $2.1 Billion.

ADC said it intends to use approximately $200 million of the net proceeds of this offering to repurchase prior to maturity or repay at maturity in June 2008 the outstanding $200 million aggregate principal amount of its 1% Convertible Subordinated Notes due 2008.  The remainder is set aside for general corporate purposes and strategic opportunities.  ADCT will use Credit Suisse and Morgan Stanley as joint book-running managers for the offering and co-managers are listed as J.P. Morgan and Bear Stearns & Co.

Shares would have likely been higher after the Cramer tout, but because of the stock offering the stock is trading down almost 5% in after-hours trading at $16.89 on what appears to be more than 400,000 shares in after-hours activity.  The 52-week trading range is $14.04 to $21.06. 

This stock conducted a 1 for 7 reverse stock split back in May 2005 after its shares had been perpetually stuck around $1.00 to $2.00 on an "old stock price" on an unadjusted split price.  Shares were then between $18.00 to $21.00 and are currently under that.  If you go back to the bubble days in 2000 on an adjusted basis this traded back over $200.00 during the fiber optics craze.

Jon C. Ogg
December 18, 2007