Cable equipment manufacturer
Arris Group Inc.
) has fixed a rate it will pay on its $925 million term loan,
which the company is raising to finance the acquisition of
) Motorola Mobility's Home business. On Dec 19 2012, Arris agreed
to purchase Motorola's set top box (STB) business in a cash and
stock deal worth $2.35 billion.
Per the deal, Arris will pay $2.05 billion in cash and $300
million in newly issued shares of the company. To raise the said
money the company has decided to take a five-year $1,000 million
term loan A, a seven-year $925 million term loan B and a $250
million of revolving credit facility with a maturity period of
The company has decided to pay an extra 2.75-3% point over
Libor (London interbank offered rate) for its seven-year term B
loan worth $925 million. Significantly, Arris is getting the term
loan at a discounted rate, which in turn will have a less impact
on its margins.
) and Royal Bank of Canada are handling the financing for the
cable equipment manufacturer.
Notably, on May last year, Google acquired a 100% stake in
Motorola Mobility business to compete more efficiently with other
handset manufacturers as the smartphone battle intensifies around
the world. However, Google was not much interested in Motorola's
STB business and put up the division for sale on Dec 7, 2012.
According to research firm IDC, global STB market is set to
register 5.6% compounded annual growth over the 2010-2015 period,
mainly attributable to worldwide expansion of pay TV service. We
believe acquiring the STB business makes sense for Arris as it
will have access to Motorola's wider market and expanded customer
base. Following the completion of the deal, Arris will become a
dominant CMTS (cable modem transmission system) player behind
Cisco Systems Inc.
Motorola's home business will considerably increase Arris's
topline and will generate more than $100 million in cost
synergies. Nevertheless, undertaking such a huge loan for a
company that has a low debt may considerably increase its
Currently Arris Group Inc. carries a Zacks Rank #2 (Buy).
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