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Arris acquires Motorola STB business

Broadband media technology specialist Arris Group and Google have confirmed that Arris and Motorola Mobility, a Google subsidiary, have entered into a definitive agreement under which Arris will acquire the Motorola Home business from Motorola Mobility, for $2.35 billion in a cash-and-stock transaction approved by the Boards of Directors of both companies.

Motorola Mobility’s Home business delivers the smart, simple connected home, which is driving the evolution of TV. The company is a global IP business that is pioneering advancements in the cloud, the network, and the home to enable the desired IP Connected Home and future service provider revenue streams. Its end-to-end platform includes advanced software and network technology, services and systems integration, content security, managed home solutions, and next-gen home devices that deliver rich user experiences.

Arris  beat off interest from Pace and Technicolor and private equity concerns. Google August 2012 hired Barclays to seek buyers for the unit, which has been losing market share to players such as Pace. Motorola tried unsuccessfully to sell the business in 2009 for $4.5 billion. The emergence since then of devices such as Apple TV and Roku was widely expected to drive the price tag lower.

The acquisition will be on a cash-free, debt-free basis and is expected to be significantly accretive to Arris ‘ Non-GAAP earnings starting in the first full year after closing.

Under the terms of the agreement, upon closing of the transaction, Google will receive $2.05 billion in cash and approximately $300 million in newly issued Arris shares, subject to certain adjustments provided for in the agreement, representing an approximately 15.7 per cent ownership interest in Arris post-closing.

Arris  says that acquiring Motorola Home will enhance its ability to provide next-generation consumer video products and services, supporting a more comprehensive product offering while also accelerating its ability to deliver a comprehensive set of industry-leading new products for broadband to a wide spectrum of customers. The transaction will increase Arris’ patent portfolio and provide a licence to a wide array of Motorola Mobility patents.

“This transformational combination of two complementary businesses will create a leading end-to-end provider of today’s video, data, and voice products and tomorrow’s next-generation IP-based broadband products,” said Bob Stanzione, Chairman and CEO of Arris. “Ever-expanding consumer demand for bandwidth will continue to drive growth across cloud and network technologies we provide that enable innovative home entertainment products and services.”

“Acquiring Motorola Home builds on Arris’ rich history, creating a global player with significant footprint, revenue and cash flow. It also adds expertise in video and a larger presence in the home to our core strengths in voice and data, ensuring we are even better positioned to capitalise on and manage the evolution toward multi-screen home entertainment. We look forward to working with the Motorola Home team as we integrate their complementary product portfolio and engineering expertise to accelerate best-in-class end-to-end solutions to a broader customer base and increase value for shareholders,” Stanzione continued.

The combined operation will have a global presence with over 500 customers in 70 countries, more than tripling Arris pro forma combined revenue to approximately $4.7 billion for the trailing four quarter period ended September 30th 2012. The combined entity will offer a wide array of products and solutions and will have an expanded customer base encompassing the full spectrum of broadband content and service providers.

“Our Home business has been a vibrant part of Motorola Mobility’s portfolio, innovating while delivering strong financial performance,” said Dennis Woodside, Chief Executive Officer of Motorola Mobility, the Google subsidiary that is the parent of Motorola Home. “The industry faces its biggest technology transformation, and together Arris and Motorola will be able to accelerate related innovations such as the introduction of the IP Connected Home environments that service providers need and that their consumers crave.”

“We share a similar vision and strategy with Arris for the industry’s migration to IP. The combination of our solutions, expert technologists and roadmaps promises to transform how service providers deliver the smart, simple connected home to consumers throughout the world,” said Marwan Fawaz, the Executive Vice President of Motorola Mobility who leads Motorola Home.

Motorola Home is a profitable business that generated revenues of $3.4 billion for the trailing four quarters ended September 30th 2012. The combination is expected to generate approximately $100 – $125 million in annual cost synergies.

The transaction is expected to close by the second quarter of 2013, subject to customary approvals and closing conditions.

The cash portion of the consideration to be received by Google at closing will be funded through debt financing commitments from Bank of America Merrill Lynch and Royal Bank of Canada.

Evercore Partners is acting as lead financial advisor and Troutman Sanders is acting as lead legal counsel to Arris on this transaction. Bank of America Merrill Lynch is also advising Arris. Barclays is acting as financial advisor and Cleary Gottlieb Steen & Hamilton LLP is acting as legal counsel to Google on this transaction.

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