C-COR Stock Jumps 22% on Arris Bid
Arris Shares Fall After Announcing Deal That Would Combine Two Cable-Technology Vendors
By Todd Spangler -- Multichannel News, 9/24/2007 9:51:00 AM
Shares of C-COR jumped 22% Monday after Arris Group announced a takeover bid valued at $730 million, while shares of Arris fell 16% on concerns that the price tag was too rich.
Under the terms of the deal, Arris is offering individual C-COR shareholders either a cash payment of $13.75 or 0.9642 Arris shares per share, subject to “pro ration” if the elections exceed approximately 51% in cash or 49% in stock.
Arris’ $13.75-per-share offer represented a 39% premium over C-COR’s Friday closing price of $9.88. C-COR shares closed Monday at $12.02.
Ferris, Baker Watts analyst Murray J. Arenson, who tracks C-COR, said the deal makes sense because Arris has “been looking for expansion on the video side of the equation, and this makes them more of a major, top-tier player on the cable side.”
“I think it’s the right deal to do,” Arenson said, though he added “the timing could have been better” given that C-COR’s stock price has been off its 52-week high of $16.
Arris and C-COR combined can now offer a full suite of Internet Protocol telephony, high-speed data, video infrastructure and video-management solutions, Arris chairman and CEO Bob Stanzione said on a conference call with investors Monday.
“This transaction we’re announcing this morning is a giant leap forward for us in supplementing the video component of our portfolio,” he said.
But while C-COR investors were upbeat on the move, Arris shareholders were bearish on the plan amid concerns that the price tag is too high. Arris stock closed at $11.98, down $2.28 for the day from Friday’s price of $14.26.
ThinkEquity Partners analyst Anton Wahlman lowered the 12-month price target on Arris’ stock from $20 to $15 on Monday, “while we consider the impact of the pending C-COR merger.”
“We believe the proposed merger with C-COR makes a lot of sense, but believe the price paid is at least close to a full price, causing some valuation concern,” Wahlman wrote. “Having said that, we believe that from a synergy and integration perspective, this particular target has one of the lowest risk factors of anything Arris could have done.”
Executives for the two companies positioned the deal as combining Arris’ strengths in cable data and telephony with C-COR’s video-on-demand and operations support systems business units – able to compete more effectively together against the two biggest technology suppliers to the cable industry, Cisco Systems and Motorola.
The proposed union comes less than year after Arris attempted to launch itself into the video-equipment business in an offer for Tandberg Television, which was ultimately bought by telecom-equipment giant Ericsson.
It may have been just as well for Arris that the Tandberg deal fell apart. According to Infonetics Research analyst Jeff Heynen, the Arris product portfolio is a much better fit with C-COR than with Tandberg.
“We all knew that video was the missing piece for [Arris],” Heynen said. “But I really think C-COR makes better sense for them [than Tandberg] because they can expand what they’re offering to the MSOs they already sell to…. Arris is now able to go to an MSO and say, ‘OK -- we now have a complete solution for you from one supplier.’”
Stanzione noted on the call that Arris’ proposed deal for Tandberg was bigger – that bid was valued at $1.2 billion – and acknowledged C-COR is closer to Arris’ traditional cable customer base.
“Not to say this was on the rebound or anything, but [acquiring C-COR] is exactly what we were looking to do,” he said. “We have always said our greatest strength is in the cable industry, and that our focus on the industry is what has enabled us to compete successfully against the larger companies that are more diversified.”
Arris and C-COR together count 250 customers, including Comcast, Time Warner Cable, Cox Communications, Charter Communications, Cablevision Systems, Insight Communications, Bright House Networks, Rogers Communications and Liberty Global.
The Arris/C-COR deal has been approved by both boards of directors, but not by the companies’ respective shareholders. Pending approvals, the acquisition is expected to close in January.
Stanzione, on the conference call Monday, said that one C-COR board member – to be announced at a later date – will join Arris’ seven-member board.
The deal represents something of a turnabout for C-COR, which in recent years had itself been a voracious acquirer.
C-COR, under CEO David Woodle, made 13 separate acquisitions between 1999 and 2005 worth $440 million. C-COR snapped up such former cable vendors as nCUBE, Stargus, Alopa Networks and Optinel Systems, extending the company into video-on-demand and voice over Internet Protocol management to land more business with U.S. and international cable firms and telephone providers.
At last count, C-COR had 1,260 employees and Arris had 781, with a combination of more than 850 engineers. Arris chief financial officer Dave Potts said the companies anticipate “some overlap in functions” and anticipate more than $10 million in annual operational cost-savings over time from the merger. He noted, though, that there will be some up-front costs associated with integrating the companies.
Stanzione said Jim Lakin, president and chief operations officer of Arris Broadband Group, has been appointed “chief integration officer” to manage the process of combining Arris and C-COR.
Asked if Arris may be considering additional acquisitions after C-COR, Stanzione replied that “we’ve certainly got our hands full for the next few months… but after that I wouldn’t rule anything out beyond that period of time.”
Arris Buys Paul Allen’s DVRs
09/25/2009C-COR Could Be Arris’ Missing Video Link
09/29/2007Arris Buys DVR Maker Digeo For $20 Million
09/22/2009Arris to Acquire C-COR for $730M
09/22/2007
