Arris Group Inc.
), a cable equipment manufacturer, has agreed to purchase
Motorola Mobility's set top box ('STB') business in a cash and
stock deal worth $2.35 billion. If successful, the deal will be a
transformational for Arris, and will make it a much bigger player
in the cable box business.
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Per the deal, Arris will pay $2.05 billion in cash and the
remaining $300 million in newly issued shares of the company
which in turn will give
) a 15.7% stake in the cable OEM (Original Equipment
Manufacturer). The deal, which is subject to regulatory approval,
is expected to close in the second half of 2013. Following this
announcement, the shares of Arris leaped $2.46 or 16.92% on
Nasdaq in the after-market trade on Wednesday.
As part of the transaction, Arris will get access to Motorola's
2,000 patents including video conferencing and digital right
management patent besides obtaining the right to license
additional intellectual property from the handset manufacturer.
On the contrary, Motorola's patent-infringement litigation with
) remains a matter of concern for Arris.
In May this year, Google acquired a 100% stake in Motorola
Mobility in an all cash deal worth $12.5 billion. The strategic
rationale behind the move was to benefit from Motorola's
impressive portfolio of 17,000 patents, which will allow the
search engine giant to compete more efficiently with
) and Samsung Electronics Co. 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 December 7, 2012.
Arris and UK-based Pace Plc submitted the most compelling bid for
the unit. But Arris succeeded in outbidding Pace and other
multiple bidders for the unit.
The deal is a significant one for Georgia-based Arris as it will
profit in quite a number of ways. Following the completion of the
deal, Arris will become a dominant CMTS (cable modem transmission
system) player behind market leader
Cisco Systems Inc.
Subsequently, Arris will benefit from significant top and
bottom-line growth besides adding two of the largest cable
Time Warner Cable
) as its customers.
According to IDC, global STB market is set to register a 5.6%,
2010-2015 compounded annual growth mainly attributable to
worldwide expansion of pay TV service. We believe acquiring STB
unit makes sense for Arris as it will have access to Motorola's
wider market and expanded customer base.
We maintain our long-term Neutral recommendation on Arris Group
Inc. Also, it holds a Zacks #3 Rank, implying a short-term Hold
rating on the stock.