Transaction More Than Doubles Expected
Product Addressable Market to Greater Than $60 Billion
Expected to Generate Approximately $1
Billion in Cash Flow from Operations1 and Be More
Than 30 Percent Accretive to Adjusted EPS in First Full Year after
Closing
Expect More than $150 Million in Annual Cost
Synergies Within Three Years
The Carlyle Group Reestablishes Ownership
Position in CommScope with $1 Billion Minority Investment
CommScope (NASDAQ: COMM), a global leader in infrastructure
solutions for communications networks, has agreed to acquire ARRIS
International plc (NASDAQ: ARRS), a global leader in entertainment
and communications solutions, 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.
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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, fiber and
mobility everywhere, 5G, Internet of Things and rapidly changing
network and technology architectures. (Graphic: Business Wire)
In addition, The Carlyle Group, a global alternative asset
manager, has reestablished 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 amortization) of approximately $1.8 billion, based on results
for the two companies for the 12 months ended September 30,
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, fiber 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:
- Customer Premises Equipment (CPE),
featuring access devices such as broadband modems, gateways and
routers and video set-tops and gateways;
- Network & Cloud (N&C),
combining broadband and video infrastructure with cloud-based
software solutions; and
- Enterprise Networks, incorporating the
recently acquired Ruckus Wireless® and ICX Switch® businesses, and
focusing on wireless and wired connectivity, including Citizens
Broadband Radio Service solutions.
For the 12 months ended September 30, 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
personalized, 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.”
Transaction is a critical step in fueling growth, shareholder
value and customer benefits:
- Positioned to Capitalize on Positive
Industry Trends: The combined company will be well positioned
to benefit from key industry trends by combining best-in-class
capabilities in network access technology and infrastructure and
creating end-to-end and comprehensive solutions. We believe trends
such as network convergence, fiber and mobility everywhere, the
advent of 5G and fixed wireless access, Internet of Things and
rapidly changing network and technology architectures will provide
compelling long-term opportunities for the combined company and its
unique end-to-end communications infrastructure capabilities.
- Unlocks Significant, High-Growth
Segments and Increases Product Addressable Market: The company
expects to more than double its total product addressable market to
more than $60 billion, with a unique set of complementary assets
and capabilities that enable end-to-end communications
infrastructure solutions such as:
- Converged small cell solutions for
licensed and unlicensed wireless spectrum;
- Complementary wired and wireless
communications infrastructure;
- Integrated broadband access;
- Private network solutions for
industrial, enterprises and public venues; and
- Comprehensive connected and smart home
solutions.
- Expanded Product Offerings and
R&D Capabilities to Meet Diversified Customer Base:
CommScope and ARRIS will share strong technical expertise with
approximately 15,000 patents and approximately $800 million in
average annual research and development investments. With a
stronger global footprint, the combined company is expected to
serve customers across more than 150 countries.
- Strong Financial Profile with Cost
Savings Opportunities: For the 12 months ended September 30,
2018, on a pro forma basis, the combined company would have
generated revenues of approximately $11.3 billion with adjusted
EBITDA of approximately $1.8 billion. As a result of the combined
company’s increased scale, CommScope expects to achieve annual
run-rate cost savings of at least $150 million within three years
post-close, with synergies of more than $60 million expected to be
realized in the first full year after closing and more than $125
million expected to be realized after the second year post-close,
driven from natural synergies primarily in direct procurement and
SG&A.
- Significantly Accretive to
CommScope’s Earnings: The transaction is expected to be more
than 30 percent accretive to CommScope’s adjusted earnings per
share by the end of the first full year after closing, excluding
purchase accounting charges, transition costs and other special
items.
- Maintains CommScope’s Strong Balance
Sheet, Credit Position and Financial Flexibility: With a unique
set of complementary assets and capabilities that enable end-to-end
communications infrastructure solutions, the combined company is
expected to generate approximately $1 billion in cash flow from
operations1 in the first full year after closing. Upon completion
of the transaction, CommScope’s net leverage (debt less cash) ratio
based on pro forma adjusted EBITDA1 for the 12 months ended
September 30, 2018 is expected to be 5.1x, including full run-rate
synergies of $150 million. Given the increased scale and cash flow
generation, as well as both companies’ track records of successful
integration, CommScope expects to rapidly de-lever, targeting a net
leverage ratio of approximately 4.0x in the second full year after
closing. Long term, the company is targeting a net leverage ratio
of 2.0x to 3.0x.
Terms and Financing
The per share cash consideration represents a premium of
approximately 27 percent to the volume weighted average closing
price of ARRIS’ common stock for the 30 trading days ended October
23, 2018, the day prior to market rumors 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, Eddie Edwards will
continue in his role as president and chief executive officer of
CommScope, with Bruce 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.
Approvals
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.
Advisors
Allen & Company LLC, Deutsche Bank, J.P. Morgan Securities
LLC, and BofA Merrill Lynch are serving as financial advisors to
CommScope, and Alston & Bird LLP, Latham & Watkins LLP,
Cravath, Swaine & Moore LLP, Pinsent Masons LLP and Skadden,
Arps, Slate, Meagher & Flom LLP are serving as legal counsel.
Evercore is serving as financial advisor to ARRIS. Troutman Sanders
LLP, Herbert Smith Freehills LLP and Hogan Lovells LLP are serving
as legal counsel to ARRIS. Simpson, Thacher & Bartlett LLP is
serving as Carlyle’s legal counsel.
Conference Call and Webcast
CommScope and ARRIS will host a conference call today, November
8, 2018, at 8:30 a.m. ET to discuss the transaction. The conference
call can be accessed by dialing +1 844-397-6169 (U.S. and Canada
only) or +1 478-219-0508 and giving the passcode 1458698.
A live webcast of the conference call will be available on the
investor relations section of each company’s website at
ir.commscope.com and ir.arris.com. The webcast will be archived on
the investor relations section of each company’s website.
Presentation and Infographic
Associated presentation materials and an infographic regarding
the transaction will be available on the investor relations section
of each company’s website at www.commscope.com and
www.arris.com.
About CommScope
CommScope (NASDAQ: COMM) helps design, build and manage wired
and wireless networks around the world. As a communications
infrastructure leader, we shape the always-on networks of tomorrow.
For more than 40 years, our global team of greater than 20,000
employees, innovators and technologists have empowered customers in
all regions of the world to anticipate what’s next and push the
boundaries of what’s possible. Discover more at
http://www.commscope.com/Follow us on Twitter and LinkedIn and like
us on Facebook.
Sign up for our press releases and blog posts.
About ARRIS
ARRIS International plc (NASDAQ: ARRS) is powering a
smart, connected world. The company's leading hardware, software
and services transform the way that people and businesses stay
informed, entertained and connected. For more information,
visit www.arris.com.
For the latest ARRIS news:
- Check out our blog: ARRIS
EVERYWHERE
- Follow us on Twitter: @ARRIS
1 Financial metrics presented are adjusted to exclude purchase
accounting charges, transaction and integration costs and other
special items.
Caution Regarding Forward Looking Statements
This press release or any other oral or written statements made
by CommScope or ARRIS, or on either company’s behalf, may include
forward-looking statements that reflect the current views of
CommScope and/or ARRIS (collectively, “us,” “we,” or “our”) with
respect to future events and financial performance, including the
proposed acquisition by CommScope of ARRIS. These statements may
discuss goals, intentions or expectations as to future plans,
trends, events, results of operations or financial condition or
otherwise, in each case, based on current beliefs of our
management, as well as assumptions made by, and information
currently available to, such management. These forward-looking
statements are generally identified by their use of such terms and
phrases as “intend,” “goal,” “estimate,” “expect,” “project,”
“projections,” “plans,” “potential,” “anticipate,” “should,”
“could,” “designed to,” “foreseeable future,” “believe,” “think,”
“scheduled,” “outlook,” “target,” “guidance” and similar
expressions, although not all forward-looking statements contain
such terms. This list of indicative terms and phrases is not
intended to be all-inclusive.
These statements are subject to various risks and uncertainties,
many of which are outside of our control, including, without
limitation: dependence on customers’ capital spending on data and
communication systems; concentration of sales among a limited
number of customers and channel partners; changes in technology;
industry competition and the ability to retain customers through
product innovation, introduction and marketing; risks associated
with sales through channel partners; changes to the regulatory
environment in which our customers operate; product quality or
performance issues and associated warranty claims; the ability to
maintain effective management information systems and to implement
major systems initiatives successfully; cyber-security incidents,
including data security breaches, ransomware or computer viruses;
the risk our global manufacturing operations suffer production or
shipping delays, causing difficulty in meeting customer demands;
the risk that internal production capacity or that of contract
manufacturers may be insufficient to meet customer demand or
quality standards; changes in cost and availability of key raw
materials, components and commodities and the potential effect on
customer pricing; risks associated with dependence on a limited
number of key suppliers for certain raw materials and components;
the risk that contract manufacturers we rely on encounter
production, quality, financial or other difficulties; our ability
to integrate and fully realize anticipated benefits from prior or
future acquisitions or equity investments; potential difficulties
in realigning global manufacturing capacity and capabilities among
global manufacturing facilities or those of our contract
manufacturers that may affect our ability to meet customer demands
for products; possible future restructuring actions; substantial
indebtedness and maintaining compliance with debt covenants; our
ability to incur additional indebtedness; our ability to generate
cash to service our indebtedness; possible future impairment
charges for fixed or intangible assets, including goodwill; income
tax rate variability and ability to recover amounts recorded as
deferred tax assets; our ability to attract and retain qualified
key employees; labor unrest; obligations under defined benefit
employee benefit plans may require plan contributions in excess of
current estimates; significant international operations exposing us
to economic, political and other risks, including the impact of
variability in foreign exchange rates; our ability to comply with
governmental anti-corruption laws and regulations and export and
import controls worldwide; our ability to compete in international
markets due to export and import controls to which we may be
subject; the impact of the U.K. invoking Article 50 of the Lisbon
Treaty to leave the European Union; changes in the laws and
policies in the United States affecting trade, including recently
enacted tariffs on imports from China, as well as the risks and
uncertainties related to tariffs or a potential global trade war
that may impact our products; costs of protecting or defending
intellectual property; costs and challenges of compliance with
domestic and foreign environmental laws; the impact of litigation
and similar regulatory proceedings that we are involved in or may
become involved in, including the costs of such litigation; risks
associated with stockholder activism, which could cause us to incur
significant expense, hinder execution of our business strategy and
impact the trading value of our securities; and other factors
beyond our control. These risks and uncertainties may be magnified
by CommScope’s acquisition of ARRIS, and such statements are also
subject to the risks and uncertainties related to ARRIS’
business.
Such forward-looking statements are subject to additional risks
and uncertainties related to CommScope’s proposed acquisition of
ARRIS, many of which are outside of our control, including, without
limitation: failure to obtain applicable regulatory approvals in a
timely manner, on acceptable terms or at all, or to satisfy the
other closing conditions to the proposed acquisition; the risk that
CommScope will not successfully integrate ARRIS or that CommScope
will not realize estimated cost savings, synergies, growth or other
anticipated benefits, or that such benefits may take longer to
realize than expected; risks relating to unanticipated costs of
integration; the potential impact of announcement or consummation
of the proposed acquisition on relationships with third parties,
including customers, employees and competitors; failure to manage
potential conflicts of interest between or among customers;
integration of information technology systems; conditions in the
credit markets that could impact the costs associated with
financing the acquisition; the possibility that competing offers
will be made; and other factors beyond our control.
These and other factors are discussed in greater detail in the
reports filed by CommScope and ARRIS with the U.S. Securities and
Exchange Commission, including CommScope’s Annual Report on Form
10-K for the year ended December 31, 2017 and Quarterly Report on
Form 10-Q for the period ended September 30, 2018 and ARRIS’
Quarterly Report on Form 10-Q for the period ended June 30, 2018.
Although the information contained in this press release represents
our best judgment as of the date hereof based on information
currently available and reasonable assumptions, neither CommScope
nor ARRIS can give any assurance that the expectations will be
attained or that any deviation will not be material. Given these
uncertainties, we caution you not to place undue reliance on these
forward-looking statements, which speak only as of the date made.
Neither CommScope nor ARRIS are undertaking any duty or obligation
to update this information to reflect developments or information
obtained after the date of this report, except as otherwise may be
required by law.
Non-GAAP Financial Measures
CommScope and ARRIS’ management believe that presenting certain
non-GAAP financial measures provides meaningful information to
investors in understanding operating results and may enhance
investors' ability to analyze financial and business trends.
Non-GAAP measures are not a substitute for GAAP measures and should
be considered together with the GAAP financial measures. As
calculated, CommScope and ARRIS’ non-GAAP measures may not be
comparable to other similarly titled measures of other companies.
In addition, CommScope and ARRIS’ management believe that these
non-GAAP financial measures allow investors to compare period to
period more easily by excluding items that could have a
disproportionately negative or positive impact on results in any
particular period. GAAP to non-GAAP reconciliations for historical
periods are included in the reports CommScope and ARRIS file with
the U.S. Securities and Exchange Commission.
Important Additional Information Regarding the Transaction
and Where to Find It
In connection with the proposed transaction, ARRIS will prepare
a proxy statement to be filed with the Securities and Exchange
Commission (the “SEC”). When completed, a definitive proxy
statement and a form of proxy will be mailed to the stockholders of
ARRIS. INVESTORS AND STOCKHOLDERS OF ARRIS ARE URGED TO READ ALL
RELEVANT DOCUMENTS FILED WITH THE SEC IN CONNECTION WITH THE
TRANSACTION, INCLUDING ARRIS’ PROXY STATEMENT WHEN IT BECOMES
AVAILABLE BEFORE MAKING ANY VOTING OR INVESTMENT DECISIONS WITH
RESPECT TO THE PROPOSED MERGER BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION ABOUT THE PROPOSED TRANSACTION, THE PARTIES TO THE
TRANSACTION AND THE RISKS ASSOCIATED WITH THE TRANSACTION.
Those documents, if and when filed, as well as ARRIS’ other public
filings with the SEC may be obtained without charge at the SEC’s
web site, http://www.sec.gov, or at ARRIS’ website at
http://ir.arris.com. ARRIS’ stockholders and other interested
parties will also be able to obtain, without charge, a copy of the
proxy statement and other relevant documents (when available) by
directing a request by mail to ARRIS Investor Relations, 3871
Lakefield Drive, Suwanee, GA 30024 or at http://ir.arris.com.
Participants in the Solicitation
ARRIS and its directors and certain of its executive officers,
and CommScope and its directors and certain of its executive
officers, may be deemed to be participants in the solicitation of
proxies from ARRIS’ stockholders in connection with the proposed
transaction. Information about the directors and executive officers
of ARRIS is set forth in its Annual Report on Form 10-K for the
year ended December 31, 2017, which was filed with the SEC on March
23, 2018, and its proxy statement for its 2018 annual meeting of
stockholders, which was filed with the SEC on March 23, 2018.
Information about the directors and executive officers of CommScope
is set forth in the proxy statement for CommScope’s 2018 annual
meeting of stockholders, which was filed with the SEC on March 20,
2018. Additional information regarding potential participants in
the solicitation of proxies from ARRIS’ stockholders and a
description of their direct and indirect interests, by security
holdings or otherwise, will be included in ARRIS’ proxy statement
when it is filed.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20181108005272/en/
News Media Contacts:Rick Aspan, CommScope+1 708-236-6568
or publicrelations@commscope.comorJeanne Russo, ARRIS+1
215-323-1880 or jeanne.russo@arris.comorInvestor
Contacts:Kevin Powers, CommScope+1 828-323-4970orBob Puccini,
ARRIS+1 720-895-7787 or bob.puccini@arris.com
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