Technicolor buys Cisco CPE for €550m
July 23, 2015
By Colin Mann
In a move that it says creates a global leader in customer premises equipment (CPE), Technicolor is buying Cisco’s CPE business for €550 million in cash and stock. Technicolor says the deal will see its Connected Home business achieve adjusted EBITDA in excess of €200 million in 2016.
The move signals further consolidation of the sector following ARRIS’s acquisition of Pace for $2.1 billion, and Amino’s much smaller purchase of Entone.
Under the terms of the deal, Cisco will receive approximately €413 million ($450 million) in cash and approximately €137 million ($150 million) in newly issued Technicolor shares, subject to certain adjustments provided for in the agreement.
As part of the deal Technicolor and Cisco will enter into a strategic partnership for both companies to develop and deliver next generation video and broadband technologies, with cooperation on Internet of Things (IoT) solutions and services. They say the agreement will provide ongoing commitment to all existing customers and expand offerings. By combining their strengths and leading video expertise, from content creation to in-home delivery, the two companies will accelerate innovation and forge a leading entity that network service providers can rely on for their next generation connected home experiences. Technicolor and Cisco also have signed a long-term patent cross-licensing agreement that covers specific intellectual property and patents from both companies. As part of the strategic agreement and after the transaction has closed, Hilton Romanski, Senior Vice President and Chief Strategy Officer of Cisco, will join Technicolor’s Board of Directors.
Technicolor says the transaction and addition of Cisco’s complementary product portfolio will make it one of the global leaders in CPE and will immediately increase the company’s industrial and technological scale in all major geographies:
c.15 per cent market share worldwide;
c.60 million devices shipped each year and a global presence with an installed base of c. 290 million set-top-boxes and c.185 million gateways in over 100 countries;
c.€3 billion of pro-forma revenues in 2014, doubling Technicolor’s revenues in the Connected Home segment;
Synergies generation in excess of €100 million per annum on a run-rate basis, in particular in the field of supply chain and SG&A;
Strengthened innovation capabilities with over €250 million of combined annual spending in Research and Innovation.
“We know that video expertise is essential to the future of creating outstanding network and home infrastructure products and services,” said Frederic Rose, CEO of Technicolor. “Through this acquisition and strategic agreement, Technicolor can immediately bring its unrivalled experience and innovation in video creation, delivery, and display to more customers in more geographies, while strengthening our position as a technology leader.”
“The strategic relevance of video to every consumer, business, city and country around the world is only growing, and the market is moving rapidly,” said John Chambers, Chairman and CEO of Cisco. “This is the right time and we have the right company in Technicolor to drive the future of the CPE business to deliver what our customers and partners need, today and into the future. At Cisco, we are prioritizing our investments to deliver on our strategy of video in the cloud, and will partner with Technicolor to position the CPE business and employees for future success.
The €413 million cash portion of the consideration will be financed through cash-on-hand and fully-underwritten new debt with an anticipated limited impact on Technicolor’s leverage position. Reference Technicolor share price used for calculation of number of new shares issued will be the volume-weighted average price over a period of seven days prior to announcement and seven days post announcement. Newly issued shares to Cisco will be subject to an 18-month lock-up period on five per cent of the corresponding ownership in Technicolor, with the remainder of the shares being subject to a 12-month lock-up period post-closing.
The transaction is expected to close by the end of the fourth quarter of 2015 or during the first quarter of 2016, subject to the usual regulatory and closing conditions.
The future of the division had been in question since Chambers suggested in 2012 that the set-top box didn’t form a key part of the company’s plans. Similarly, Technicolor had been reported to be seeking a partner for its STB business. Cisco paid $7 billion for Scientific Atlanta, the heart of its CPE business, in 2006.