Arris Snaps Up Google Unit - Analyst Blog
December 20 2012 - 7:15AM
Zacks
Arris Group Inc.
(ARRS), 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.
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 Google Inc. (GOOG) 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
TiVo Inc. (TIVO) 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 Apple Inc. (AAPL)
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. (CSCO).
Subsequently, Arris will benefit from significant top and
bottom-line growth besides adding two of the largest cable operator
Comcast Corp. (CMCSA) and Time Warner
Cable (TWC) 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.
APPLE INC (AAPL): Free Stock Analysis Report
ARRIS GROUP INC (ARRS): Free Stock Analysis Report
COMCAST CORP A (CMCSA): Free Stock Analysis Report
CISCO SYSTEMS (CSCO): Free Stock Analysis Report
GOOGLE INC-CL A (GOOG): Free Stock Analysis Report
TIVO INC (TIVO): Free Stock Analysis Report
TIME WARNER CAB (TWC): Free Stock Analysis Report
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