Following recent speculation that such a deal was imminent, communications networks infrastructure solutions provider CommScope has agreed to acquire entertainment and communications technologist ARRIS International, in an all-cash transaction for $31.75 per share, or a total purchase price of approximately $7.4 billion, including the repayment of debt.
In addition, The Carlyle Group, a global alternative asset manager, has re-established an ownership position in CommScope through a $1 billion minority equity investment as part of CommScope’s financing of the transaction.
The combination of CommScope and ARRIS, on a pro forma basis, would create a company with approximately $11.3 billion in revenue and adjusted EBITDA (earnings before interest, taxes, depreciation and amortisation) of approximately $1.8 billion, based on results for the two companies for the 12 months ended September 30th, 2018.
The combined company is expected to drive profitable growth in new markets, shape the future of wired and wireless communications, and position the new company to benefit from key industry trends, including network convergence, fibre and mobility everywhere, 5G, Internet of Things and rapidly changing network and technology architectures.
ARRIS, an innovator in broadband, video and wireless technology, combines hardware, software and services to enable advanced video experiences and constant connectivity across a variety of environments – for service providers, commercial verticals, small enterprises and the people they serve. ARRIS has strong leadership positions in the three segments in which it operates:
For the 12 months ended September 30th, 2018, ARRIS generated revenues of approximately $6.7 billion, consisting of $3.9 billion from CPE, $2.2 billion from N&C and $568 million from Enterprise Networks (reflecting only a partial year of Ruckus since its acquisition in December 2017).
“After a comprehensive evaluation of our business and the evolving industry we operate in, we are confident that combining with ARRIS is the best path forward for CommScope to grow and provide the greatest returns for shareholders,” said Eddie Edwards, president and chief executive officer, CommScope. “CommScope and ARRIS will bring together a unique set of complementary assets and capabilities that enable end-to-end wired and wireless communications infrastructure solutions that neither company could otherwise achieve on its own. With ARRIS, we will access new and growing markets, and have greater technology, solutions and employee talent that will provide additional value and benefit to our customers and partners.
“CommScope and ARRIS share a customer-first culture that emphasizes innovation, made possible by incredibly talented and experienced teams of people. As we have with numerous transactions in the past, we expect to work together with Bruce McClelland and the ARRIS team to create a best-in-class management team and achieve a seamless integration. Together, CommScope and ARRIS will be well positioned to serve a more diverse set of customers and generate substantial value for our shareholders.”
ARRIS Chief Executive Officer Bruce McClelland said: “CommScope is an ideal partner for ARRIS. In addition to providing immediate and substantial cash value to our shareholders, we are excited for what this combination will deliver for our customers, partners and employees around the world. Today’s agreement is a testament to the strength of ARRIS: our leading technology, talented employees and established competitive position. With CommScope, we expect to further advance ARRIS’ strategy to drive innovation across our iconic brands and pioneer the standards and pathways for tomorrow’s personalised, connected always-on consumer experience. ARRIS will become part of an even stronger, more global industry leader, and I look forward to working with the CommScope team to achieve great results for the combined company.”
CommScope says the transaction is a critical step in fuelling growth, shareholder value and customer benefits:
Terms and Financing
The per share cash consideration represents a premium of approximately 27 percent to the volume weighted average closing price of ARRIS’s common stock for the 30 trading days ended October 23rd, 2018, the day prior to market rumours regarding a potential transaction.
The transaction is not subject to a financing condition. CommScope expects to finance the transaction through a combination of cash on hand, borrowings under existing credit facilities and approximately $6.3 billion of incremental debt for which it has received debt financing commitments from J.P. Morgan Securities LLC, BofA Merrill Lynch and Deutsche Bank Securities Inc.
In addition, The Carlyle Group, a former CommScope owner, is reestablishing a minority ownership position in the company through a $1 billion equity investment, equal to approximately 16 percent of CommScope’s outstanding shares.
“We are delighted to resume our collaboration with CommScope’s accomplished management team,” said Cam Dyer, Carlyle managing director and global co-head of Technology, Media and Telecom. “We believe in the company’s long-term strategy, customer-centric culture and ability to deliver results. This optimism has fueled our desire to be a part of such a promising transaction with ARRIS.”
Leadership and Headquarters
Following completion of the combination, Edwards will continue in his role as president and chief executive officer of CommScope, with McClelland and other members of the ARRIS leadership team joining the combined company.
CommScope will remain headquartered in Hickory, NC, and the combined company will maintain a significant presence in Suwanee, GA. Upon completion of the transaction, CommScope will continue to be led by an experienced board of directors and management team that leverage the strengths of both companies.
The transaction, which is expected to close in the first half of 2019, is subject to the satisfaction of customary closing conditions; expiration or termination of the applicable waiting period under the US Hart-Scott-Rodino Antitrust Improvements Act; receipt of certain regulatory approvals; and approval by ARRIS shareholders.