Arris Bids Big for Tandberg1/19/2007 7:00 PM Eastern
Arris Group plans to acquire Tandberg Television in a deal worth an estimated $1.2 billion, as both technology suppliers see advantages in joining forces against larger rivals like Cisco Systems and Motorola.
The union would meld Arris's strong position in cable voice and data gear with Tandberg TV's video-encoding and on-demand products. “This combination creates what we believe is going to be a true powerhouse company, enabling the triple play around the world,” Arris CEO Bob Stanzione said on an analysts' conference call last week.
Tandberg TV will give Arris “both broader geographic diversity and broader customer diversity … and it also gives us more scale,” he said.
Arris counts among its customers such top U.S. cable operators as Comcast, Time Warner Cable, Cox Communications, Charter Communications and Cablevision Systems. Tandberg TV sells to a more global roster of telco, cable and satellite providers, such as BT Group and NTL in the United Kingdom, China Telecom and DirecTV.
Combined, the company would have 1,625 employees and 2,000 customers in more than 100 countries. Stanzione said he didn't expect any staff reductions to result from the deal.
Analysts practically burst into applause on the acquisition news. “We enthusiastically support Arris' gutsy move to create the standout 'third force' in cable TV and video technology,” ThinkEquity Partners analyst Anton Wahlman wrote in a note.
One standout metric: Tandberg TV had gross margins of 58% for the first nine months of 2006, compared with Arris' 28% for the period.
Thomas Weisel Partners analyst Jason Adler said the opportunity will be for Arris to sell Tandberg TV's video systems to its cable-installed base, rather than the other way around. “You can't really sell voice modems and CMTSs [cable modem termination systems] into telcos,” he said.
The companies are next-door neighbors in the Atlanta suburbs — Arris in Suwanee, while Tandberg's U.S. operations are in nearby Duluth — with a combined 600 employees in the area.
The offer is 83% cash — about $1 billion — and the remainder in Arris stock. The companies expect the deal to be completed by the end of June, pending regulatory approvals.
To finance the deal, Arris will issue $202 million in stock and raise $520 million in new debt financing through UBS, adding to $572 million in cash it had at the end of 2006. After the acquisition closes, Arris expects to have $100 million in cash on hand, plus access to $25 million in credit.
Some analysts said there was an outside chance Cisco or Motorola might launch a competing bid for Tandberg TV. But ThinkEquity's Wahlman said customers, especially cable operators, “would bark loudly” if that were to happen, making the scenario unlikely in his view.
Thomas Weisel's Ader noted that there are X factors with any merger. “It comes down to execution now,” he said. “These are two fairly sizable organizations, and putting them together will be a challenge.”