SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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of the Securities Exchange Act of 1934
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ADT Limited
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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[x] No fee required.
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and 0-11.
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pursuant to Exchange Act Rule 0-11:
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ADT LOGO
Forward Looking Information
Certain statements in this presentation constitute "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. In particular, statements contained herein regarding the
consummation and benefits of future acquisitions, as well as expectations with
respect to future sales, operating efficiencies and product expansion are
subject to known and unknown risks, uncertainties and contingencies, many of
which are beyond the control of ADT, which may cause actual results,
performance or achievements to differ materially from anticipated results,
performance or achievements. Factors that might affect such forward looking
statements include, among others, overall economic and business conditions,
the demand for ADT's services, competitive factors in the industry, regulatory
approvals and uncertainty about the consummation of future acquisitions.
1. Overview
[Graphic - Check Marked Box]
ADT "Status Quo" is a Vote For More Value
bullet Superior Stock Price Performance:
#1 Electronic Security Services company is a solid growth vehicle
(Lehman research target: $28-$30 by year end 1997)
bullet Basic Growth Engine:
1.8 million customer installed base ($920 million in contractual
recurring revenues)
bullet ADT's Turbocharger:
next generation "data management" technology offerings being
delivered today
1. Overview
[Graphic - Empty Box]
Western Proposal is Not Worthy of Your Vote
bullet Stated Value:
$22.50 is inadequate
bullet Theoretical Value:
$10.00 + 0.42017 WR shares is likely to be less than $22.50
bullet Realizable Value:
with ADT, KCP&L and "dividend nervous" sellers, market indigestion
means realizable values may be much less than $22.50
bullet Taxable transaction
1. Executive Summary
ADT Present
bullet ADT is the Strong #1: electronic security services -- North America
and U.K.
bullet Earnings Quality: recurring revenues - $920 million (1.8 million
customers, 65% is contractual)
bullet ADT has become a "Pure Play" Electronic Security Services Provider:
Selling/Sold: U.S. and U.K. Vehicle Auction operations
Acquired: Alert Centre, ASH (synergies from these recent
deals still to come)
1. Executive Summary
ADT Future
bullet Well-Positioned for the Future of the Electronic Security Services
Industry:
bullet Leading market position
bullet Only player with national brand and service delivery
bullet Economics of scale
bullet Next generation "service provider" products (the turbocharger
for ADT's current growth engine)
bullet Consolidator in a fragmented industry
2. Forces Shaping The Electronic Security Services Industry
Industry Trends
bullet Fragmented Industry Where ADT is the leader
-Top 100 companies - 23% market share
-Total market $13 billion in 1996*
-ADT is about 3.5 times the #2 player
bullet Key Drivers for Future (Residential) Industry Growth
-Size of potential market (98 million homes)
-Low residential market penetration (currently 10%)
-Increased crime awareness
-Next generation security products (technology "upgrades")
bullet "Higher Technology" Further Benefits ADT
-More sophisticated equipment
-More sophisticated monitoring
-More sophisticated service needs
-ADT is the clear leader
* Source: STAT Resources
2. Forces Shaping The Electronic Security Services Industry
Fragmentation Persists Despite Recent Consolidation
[Graphic-Chart depicting the following ($ in millions)]
U.S. Electronic Security Industry: 1995 Revenue and Market Share Comparison
$880
ADT/Alert Pro Forma
$255
Borg-Warner (Wells Fargo)
$250
Ameritech*
$223
Honeywell
$150
Westinghouse Security (Westar)
$128
Brink's Home Security
$66
Rollins Protective Services
$62
Westec Security
$56
Protection One
$53
Republic Industries
Source: Security Distributing & Marketing, May 1996.
* Includes the acquired businesses of National Guardian and Security Link.
3. Overview of ADT's Electronic Security Services Business
Electronic Security Services - Net Sales (Worldwide)*
[Graphic - Chart depicting the following Net Sales ($MM)]
1992
$901.1
1993
$937.3
1994
$999.8
1995
$1,092.5
1996
$1,406.2
Total Number of
Customers ('000's): 744 1992
864 1993
1,019 1994
1,214 1995
1,800 1996
* Amounts for 1995 and prior years exclude the acquisitions of Alert
Centre and Automated Security.
3. Overview of ADT's Electronic Security Services Business
Contractually Recurring Revenues (Worldwide)
[Graphic - Forward/upward pointing arrow reads: 15.4% Compound Annual
Growth Rate]
[Graphic - Chart depicting the following (Recurring Revenues $mm)]
1992
$518
1993
$553
1994
$588
1995
$658
1996*
$920
* Reflects acquisitions of Alert Centre and Automated Security
3. Overview of ADT's Electronic Security Services Business
Residential Security System Unit Sales
[Graphic - forward/upward pointing arrow 36.5% Compound Annual Growth
Rate]
[Graphic - Chart depicting the following]
1989
29,000
1990
50,000
1991
80,000
1992
115,000
1993
145,000
1994
180,000
1995
215,000
1996
280,000
1997P
350,000
3. Overview of ADT's Electronic Security Services Business
Electronic Security Services - Operating Income (Worldwide)*
[Graphic - Chart depicting Operating Income ($MM)]
1991
$127.7
1992
$141.0
1993
$154.0
1994
$172.9
1995
$188.7
1996
$223.1
*Excludes goodwill amortization, restructuring charges and FAS 121 charge.
Amounts for 1995 and prior years exclude Alert Centre and Automated Security.
3. Overview of ADT's Electronic Security Services Business
Nationwide Service and Distribution Network
North America [Graphic - Map of the forty-eight contiguous United
States and Canada illustrating service and
distribution network]
19 Customer monitoring centers
200 Sales and service offices
U.K. [Graphic - Map of the United Kingdom and Ireland
illustrating service and distribution network]
5 Customer monitoring centers
29 Sales and service offices
4. Initiatives For Future Growth
Overview of Internal Growth Opportunities
[Graphic - ADT logo in the middle with the following pointing to ADT]
Residential Business Initiatives
Commercial Business Initiatives
Customer Service Initiatives
New Technology Initiatives
4. Initiatives For Future Growth
Residential Business
bullet Leverage Strong Brand ("Security for Life")
bullet New Channels of Distribution
bullet Strategic Alliances (AT&T, Radio Shack, USAA, HFS
(ERA/Century 21)), More to Come!
bullet Dealers (January 1996 - 58 dealers)
(Year End 1996 - 120 dealers)
bullet Account Density Targeting
bullet New Security Services (not just the home)
bullet CarCop (GPS vehicle tracking)
bullet Video Security
bullet Medical Monitoring
bullet Personal Security
4. Initiatives For Future Growth
Commercial Business
bullet Integrated systems provider (national accounts)
bullet Retrofits for current large, sophisticated customers (390 of the
Fortune 500)
bullet "Security Sensitive" businesses need new products (banks, retail,
manufacturing, public sector)
bullet Work place data management
bullet Remote site monitoring
bullet Employee monitoring
bullet Customer traffic flow
bullet Increased penetration for small businesses (new CCTV products)
bullet ADT designs system solutions (client-specific marketing)
4. Initiatives For Future Growth
Customer Service Initiatives
bullet "Customer Care" Programs - putting more distance between ADT and its
competitors
bullet More customer interaction
bullet Team concept
bullet Employees get superior technical training
bullet R&D Spending
bullet New products shaped by vendor inputs
4. Initiatives For Future Growth
New Technology Initiatives
bullet Expanding our hardware and software capabilities
bullet Oracle
bullet MCI Systemhouse
bullet Digital
bullet Hewlett Packard
bullet Ensec
bullet Customer monitoring center station becomes a "data management center"
5. Why Shareholders Should Vote Against Western Resources' Proposals
This Kansas "Fairy Tale" Doesn't Have a Happy Ending
Toto Isn't The Only Dog in Kansas
[Graphic - Toto]
Realizable value of Western's bid may be nowhere near $22.50 (at 25%
of current WR volume, it takes ADT holders more than 5 years to
exit stock -- or 35 dog years)
Western Adds Nothing
[Graphic - Dorothy's ruby slippers]
ADT already safeguards Dorothy's ruby slippers (security for the
Smithsonian Institute)
This "Twister" Means Downside For ADT Shareholders
[Graphic - a twister (tornado)]
Western earnings and free cash flow spiral downward with each
subsequent dilutive deal (ADT would be the biggest drop yet)
There Are No Wizards Behind This Curtain
[Graphic - Picture of hanging curtains]
Western lacks the management depth to handle 4 large, simultaneous
deals
With Apologies to "The Wizard of Oz"
5. Why Shareholders Should Vote Against Western Resources' Proposals
Western's Pro Forma Stock Price
[CAPTION]
<TABLE>
Pre-ADT - Core Earnings Questions [GRAPHIC -- A TWISTER] Pre-ADT - Cash Flow "Crunch"
- --------------------------------------------------- -----------------------------------------------------
<S> <C> <C>
bullet Hidden dilution from recent deals bullet Cash Crunch: ADT, Westinghouse, foreign
(e.g., Westinghouse) investments = $1.15 billion spent in 12
month period = 8.4 years of WR dividends
bullet Threat of deregulation (WR has high-cost
generating assets; neighbors are large, bullet Post KCP&L - free cash flow is nearly $190
well-capitalized and long power) million short of required dividends
bullet Energy services capabilities = LIMITED bullet "In the absence of significant additional
equity issuances, the company's financial
bullet KCP&L: even targeted net synergies can't condition will erode"<F1>
relieve dividend pressure
bullet Insufficient management talent to
successfully integrate:
bullet Westinghouse
bullet KCP&L
bullet Foreign Investments
Post-ADT - Cash Flow "Crisis" Post-ADT - Further Earnings Hit
- -------------------------------------------------- -----------------------------------------------------
bullet Dividend pressure bullet 26-32% dilutive to post KCP&L E.P.S. in
first few years
bullet WR risks a non-investment grade rating
New Shareholders (ADT, KCP&L) and existing bullet Net negative synergies
"dividend nervous" shareholders create WR
"selling stampede" bullet Not enough management talent to do four (4)
deals at once
Next WR Bid (?)
-----------------------------------------------------
bullet More cash and/or more shares mean more
downward pressure on WR stock
bullet Key Issue: Given this outlook, can Western
even afford a "fair price"?
<FN>
1. Standard & Poors Creditwire December 19, 1996
</TABLE>
5. Why Shareholders Should Vote Against Western Resources' Proposals
Western is Hardly the Ideal Partner
Issues in Western's Core Businesses
[CAPTION]
<TABLE>
bullet Small Size: bullet No Energy Service Franchise Volume (Mwh)
- -------------------------------------------------- ------------------------------------------------------ ---------------
<S> <C> <C>
Top 5 Power Marketers
---------------------
pro forma for KCP&L, a $4 billion utility (23rd Enron Power Marketing 60.5
largest in U.S.); top 6 utilities are $8 billion+ Duke/Louis Dreyfus/PanEnergy Power 32.5
LG&E Power Marketing 17.1
Electric Clearinghouse 14.9
Citizens Lehman 12.1
Western (?) N.M.
bullet Deregulation: bullet Westinghouse Security Net Income Dilution:
- ------------------------------------------------------- -----------------------------------------------------
High Cost Generating Assets: more than 60% of $12-15 million per annum
---------------------------------------------------- (9 Cents - 12 Cents per WR/KCP&L share)
WR/KCP&L assets are generation
Western/KCP&L (Blended Average Rates) bullet "Scatter Shot" Corporate Focus
----------------------------------------------------- ----------------------------------------------------------
Resid. Rate 7.87 Cents
Comm. Rate 6.71 Cents bullet Oneok
Ind. Rate 4.69 Cents bullet Westinghouse Security
bullet Foreign Investments
bullet KCP&L
bullet ADT(?)
Where is the seasoned, highly-skilled management team that
can integrate all these deals simultaneously?
----------------------------------------------------------
bullet 5 Biggest Threats to WR/KCP&L Grid
- -------------------------------------------------------------
Marginal Cost Reserve Margin
------------- --------------
bullet Central & Southwest 2.32 Cents 15%
bullet Entergy 3.24 8%
bullet SW Public Service 2.04 5%
bullet Texas Utilities 2.56 19%
bullet Union Electric 1.93 9%
---- ---
Average: 2.42 11%
</TABLE>
5. Why Shareholders Should Vote Against Western Resources' Proposals
Western is Hardly the Ideal Partner
Problems with the Inadequate Offer for ADT
bullet Massively Dilutive to Pro Forma E.P.S.
26%-32% in the first two years
bullet Credit Rating
Western is out of debt capacity, pro forma for ADT could be at least a
two notch downgrade
bullet Pro Forma Liquidity is but a Trickle
at 25% of current WR volume, it would take ADT shareholders more
than 5 years to fully exit their WR stock
bullet Dividend Pressure
1998 Pro Forma Payout Ratio 117%(*)
1998 Pro Forma Free Cash Flow Ratio 222%(0)
Note: The next price increase by Western would only exacerbate this
problem
bullet Net Negative Synergies
Sum of the after-tax savings that ADT could realize on
Westar/Westinghouse does not even pay for the loss of ADT's
international tax structure.
5. Why Shareholders Should Vote Against Western Resources' Proposals
Western Pro Forma for ADT is Massively Dilutive
1997 1998
---- ----
bullet Summary Dilution Analysis:
Western Resources E.P.S. - Pre KCP&L, Pre ADT $2.52 $2.74
Western E.P.S. - KPC&L Pro Forma $2.26 $2.47
Western Pro Forma for KPC&L, ADT (40 year) $1.79 $2.10
(% Dilution from WR - KCP&L) (20.8%) (15.3%)
bullet Incremental Dilution from:
Onshore Structure (10 Cents) (10 Cents)
24 Year Intangible Amortization (17 Cents) (17 Cents)
Adjusted Western Pro Forma E.P.S. $1.52 $1.83
(% Dilution from WR - KCP&L) (32.4%) (26.1%)
- ----------
(*) ADT Estimate
bullet Market Confusion Regarding Potential Dilution:
The Wall Street research community is having difficulty quantifying
the pro forma impact of Western Resources' proposed acquisition of
ADT. In an October 1996 report, a leading securities firm research
analyst calculated that an acquisition of ADT at $23.00 per share
would be $0.05 per share accretive to Western. Two months later,
the same analyst estimated Western's $22.50 per share proposal
would result in dilution of $0.35 - $0.40 per share to Western.
bullet Intangible Amortization:
The potential dilution may be significantly worse than Western has
indicated because separate identifiable intangibles are amortizable
over their estimated useful life, not 40 years (incremental
dilution could be 17 Cents per share, assuming a blended 24 year
amortization period) and moving ADT onshore costs another 10 Cents
per pro forma share.
5. Why Shareholders Should Vote Against Western Resources' Proposals
How Much Are 0.42017 Shares Really Worth?
[Graphic - This information is set out as boxed text]
The "Offer" $10.00 in Cash
0.42017 shares
BLENDED
ADT-WR-KCP&L PE
1997E Net
1997E Net Income as
AT 12/17/96 1997E PE Income (1) % of Total
- ----------- -------- ---------- ----------
ADT 17.1x $210 41%
(KCP&L)(2) 13.7x 127 25%
WR 11.7x 174 34%
Blended PE 14.4x $510 100%
[Graphic - Table]
1998 Pro Forma(3)
- -----------------
WR
(Pro Forma for ADT, KCP&L)
- ----------
(1) No adjustment made for anticipated premium to be paid to KCP&L.
(2) Based on Wall Street consensus estimates.
(3) Pro forma analysis based upon Wall Street estimates for ADT and for
WR/KCP&L pro forma for their transaction.
E.P.S
- -----
$1.83
Estimated Blended PE Multiple
- -----------------------------
14x - 16x
Theoretical WR Price Range at 1/1/98
- ------------------------------------
$25.62-$29.28
Theoretical Value of 0.42017 Shares
- -----------------------------------
$10.76-$12.30
Per Share Cash Component
- ------------------------
$10.00
Total Value for ADT Shares (at 1/1/98)
- --------------------------------------
$20.76-$22.30
Discounted to
- -------------------------------
2/28/97 at 15%: $18.48-$19.85
5. Why Shareholders Should Vote Against Western Resources' Proposals
The Reality Check
bullet Point of Departure
bullet Why give control of the ADT Board to a "Low - Ball Bidder"?
bullet Why pursue a merger of equals with a small, over-leveraged
Kansas utility with net negative synergies and severe
dilution to ADT's "pure play" growth rate?
bullet Who is more closely aligned with ADT shareholders in
creating shareholder value?
bullet Michael Ashcroft - 11,075,718 ADT shares
beneficially owned
(7.8% of outstanding)
bullet Steve Ruzika - 1,157,405 ADT shares
beneficially owned (0.8% of
outstanding)
bullet John Hayes - 20,849 Western shares
beneficially owned
(0.1% of outstanding)
bullet David Wittig - 16,634 Western shares
beneficially owned
(0.0% of outstanding)
bullet Bottom Line
bullet ADT's Future is Bright (stock should exceed stated value of
bid by mid-year 1997)
bullet Western's Future is Bleak (pre-tax realizable value of Western
offer unlikely to exceed $22.00 per ADT share by year end
1997)
Three Year Relative Stock Price performance
[Graphic - chart depicting the following: three year relative stock
price performance among ADT, the S&P 400, the S&P Utilities and Western
Resources, for the period February 28, 1994 through February 28, 1997.]
2/28/94 2/28/97
------- -------
ADT 100% 214.81%
S&P 400 100% 169.00%
S&P Utilities 100% 120.92%
WR 100% 99.18%
CERTAIN ADDITIONAL INFORMATION: ADT Limited (the "Company") will be
soliciting proxies against the proposals of Western Resources, Inc.
(together with its subsidiaries, "Western") and revocations of proxies
previously given to Western for such proposals. The following individuals
may be deemed to be participants in the solicitation of proxies and
revocations of proxies by the Company: ADT Limited, Michael A. Ashcroft,
John E. Danneberg, Alan B. Henderson, James S. Pasman, Jr., Stephen J.
Ruzika, W. Peter Slusser, William W. Stinson, Raymond S. Troubh and
Angela E. Entwistle. As of February 24, 1997, Mr. Ashcroft is the
beneficial owner of 11,075,718 of the Company's common shares, Mr.
Danneberg is the beneficial owner of 102 of the Company's common shares,
Mr. Henderson is the beneficial owner of 621 of the Company's common
shares, Mr. Pasman is the beneficial owner of 2,000 of the Company's
common shares, Mr. Ruzika is the beneficial owner of 1,157,405 of the
Company's common shares, Mr. Slusser is the beneficial owner of 2,800 of
the Company's common shares, Mr. Stinson is the beneficial owner of 3,010
of the Company's common shares, Mr. Troubh is the beneficial owner of
2,500 of the Company's common shares and Ms. Entwistle is the beneficial
owner of 29,500 of the Company's common shares. The Company has retained
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") to act
as its financial advisor in connection with Western's proposals. Merrill
Lynch is an investment banking firm that provides a full range of financial
services for institutional and individual clients. Merrill Lynch does not
admit that it or any of its directors, officers or employees is a
"participant" as defined in Schedule 14A ("Schedule 14A") promulgated
under the Securities Exchange Act of 1934, as amended, in the proxy
solicitation, or that such Schedule 14A requires the disclosure of
certain financial information concerning Merrill Lynch. In connection with
Merrill Lynch's role as financial advisor to the Company, Merrill Lynch and
the following investment banking employees of Merrill Lynch may communicate
in person, by telephone or otherwise with a limited number of institutions,
brokers or other persons who are shareholders of the Company: Barry
Friedberg (Executive Vice President), Richard Johnson (Managing Director),
Huston McCollough (Managing Director), Hugh O'Hare (Vice President), Robert
Simensky (Vice President) and Paul Bastone (Associate). In the normal course
of its business, Merrill Lynch regularly buys and sells securities issued
by the company and its affiliates ("ADT Securities") for its own account
and for the accounts of its customers, which transactions may result from
time to time in Merrill Lynch and its associates having a net "long" or net
"short" position in ADT Securities or option contracts with other
derivatives in or relating to ADT Securities. As of February 28, 1997,
Merrill Lynch held positions in ADT Securities as principal as follows:
(i) net "short" 769,995 of the Company's common shares; (ii) net "long"
$51,000 par amount of 9.25% Guaranteed Senior Subordinated Notes of the
Company due August 1, 2003; and (iii) net "long" 31,509 Liquid Yield
Option[Trademark] Notes of the Company due 2010, exchangeable for 889,499
of the Company's common shares.
