Market Insight

ARRIS completes Motorola acquisition

April 29, 2013

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ARRIS has successfully completed its acquisition of the Motorola Home business unit from Google. The combined company will be one of the largest set-top box, modem and network infrastructure providers for video and cable internet equipment in the world. In 2012, ARRIS reported revenue of $1.35b, while the Motorola Home business unit turned-over $3.45b.

The transaction was finalized for $2.2b in cash, and 10.6MM shares of ARRIS shares of common stock issued to Google. This stock is valued at $150.0MM, bringing the total consideration to $2.35b. The acquisition was approved by the U.S. Department of Justice on April 12, and was finalized on April 17, 2013. Part of the financing for the acquisition was obtained through debt financing, as well as an additional 10.6MM shares of ARRIS issued to Comcast Corporation, resulting in both Google and Comcast each holding approximately 7.7 per cent of outstanding ARRIS shares. Google also agreed to indemnify ARRIS from intellectual property infringement claims, to include action brought by TiVo against Motorola with regards to DVR equipment sold.

This acquisition reflects a broader industry trend towards the convergence of IP video distribution and broadcast, and is representative of the consolidation of the video industry across infrastructure and consumer premise equipment. The combination of ARRIS and Motorola Home will have revenues of close to $4.8b using 2012 figures, exceeding those of Cisco's $4.3b Service Provider Video segment: which is a comparable business including STBs, Broadband CPE, CMTS, Videoscape, and video headend equipment. ARRIS's STB business will now primarily be served out of the Motorola Home, which shipped 17.3MM units worth over $2b in 2012. This would place ARRIS as the market leader in terms of set-top boxes, competing directly with Cisco, Pace, Samsung and Technicolor, in the largest five vendors in the space. Pace had also disclosed a bid for the Motorola Home business on 10 December 2012, prior to the ARRIS announcement.

Previously, ARRIS was one of the major US cable infrastructure suppliers and has previously successfully competed against Cisco and Motorola for CMTS, encoders and cable headend equipment, though the company experienced difficulty breaking into the North American cable set-top box market. In 2009, ARRIS acquired Digeo, including the Moxi branded division, a company that provided solutions for advanced search and discovery, DVR and other advanced functionalities found commonly in Multimedia Home Gateways (MHGs). In 2011, ARRIS followed with the purchase of BigBand Networks, which provided switched digital video (SDV), video-on-demand (VOD), IPTV, edge and CMTS equipment in the US cable sector. Despite the strategy behind the acquisitions, ARRIS's set-top box deployments were limited to Canada's Shaw Communications and 11 smaller tier 2 and 3 US cable operators. The company identified and targeted the MHG market, and was the first to market with a headless MHG for Shaw. Motorola had not yet managed to deploy an MHG by the time of the acquisition, but does bring a larger footprint of operators, a robust set-top box business by volume, strong international sales, and additional technologies into the fold.

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