Arris Group plans to acquire struggling video-equipment vendor BigBand Networks in a deal worth $172 million in cash, or $53 million net of BigBand's cash on hand. It's another move that would consolidate the cable industry's technology suppliers.
The deal -- expected to be completed in late 2011 -- would bulk up Arris's position in the video space, giving it access to BigBand's leading switched digital video platform, as well as its next-generation IPTV, video processing and advanced advertising platforms.
Arris said BigBand's employee expertise and products are expected to "accelerate time-to-market and increase opportunities for Arris in several fast-growing product areas," including the Converged Cable Access Platform (CCAP) architecture defined by CableLabs, local and targeted advertising, IP video distribution, and advanced video processing and compression. Arris also cited BigBand's patent portfolio.
BigBand has suffered dwindling sales and ongoing losses over the last two years -- posting a net loss of $31.6 million on revenue of $111.7 million for 2010 -- leading to several rounds of layoffs. The Redwood City, Calif.-based company also has seen the departure of a number of senior executives in the last two years. BigBand relies on a small number of large MSO customers, which overall have been spending less on its flagship switched digital video products than in the past.
Arris said it expects to begin "rapidly optimizing BigBand's financial performance through meaningful operating synergies such as the elimination of public company costs and the alignment of sales, marketing and R&D initiatives." The companies did not announce job reduction estimates.
Arris is offering $2.24 per share in cash for BigBand -- a 76% premium over its previous closing price of $1.27 per share. The acquisition will be conducted by means of a tender offer for all of the outstanding shares of BigBand, which is expected to commence within 10 business days and will be subject to customary closing conditions.
Arris anticipates that the BigBand acquisition will be neutral to accretive on a non-GAAP basis for Arris shareholders by mid-2012 and will offer "upside potential thereafter" by addressing upcoming video network evolution opportunities with a more complete offering.
"We are both enthusiastic and optimistic about the BigBand acquisition because it builds on our stated business strategy of growing our current businesses into a more complete portfolio including a strong video product suite and investing in the evolution towards network convergence onto an all IP platform," Arris chairman and CEO Bob Stanzione said in a statement.
BigBand had 401 employees at the end of the second quarter of 2011, after counting 465 employees at the end of 2010. (Arris currently has 1,940 employees.) Customers include Comcast, Time Warner Cable, Cox Communications, Cablevision Systems, Charter Communications and Verizon Communications.
BigBand president and CEO Amir Bassan-Eskenazi commented, "The BigBand team is proud of its accomplishments over the last 12 years in developing innovative products that enable the transmission of digital television to consumers around the world. We are excited to see this legacy live on and generate broader opportunities with continued innovation in media processing as part of the world-class product and service offerings provided by the Arris organization."
BigBand's board of directors has unanimously recommended that the shareholders of BigBand accept the offer. Redpoint Ventures and ValueAct Capital Partners, holders of 32% of the outstanding shares of BigBand, have agreed to tender their shares in the offer and to vote their shares in favor of the merger agreement and against any other transaction, subject to the provisions of the agreement.
UBS Investment Bank is acting as exclusive financial advisor and Troutman Sanders LLP is acting as legal counsel to Arris. Centerview Partners LLC is acting as the exclusive financial advisor and Wilson Sonsini Goodrich & Rosati is acting as legal counsel to BigBand.
Under the terms of the deal, BigBand is permitted to terminate the merger agreement if it receives a higher offer (subject to giving Arris three business days' notice) but would be required to pay a $5.5 million breakup fee.
Arris expects to incur a one-time charge of $18 million in association with the BigBand acquisition.