Arris to Buy Motorola's Home Unit from Google for $2.35B

Deal Comes Seven Months After Google Acquired Motorola Mobility

In a move that would shake up the cable technology playing field, Arris Group has agreed to pay Google $2.35 billion in cash and stock to buy Motorola Mobility’s Home business.

According to Arris, the acquisition will be on a cash-free, debt-free basis and is expected to be significantly accretive to the company’s non-GAAP earnings starting in the first full year after closing. The deal, if completed, would result in a company with three times Arris’s current revenue run rate.

Under the terms of the deal, announced late Wednesday, upon closing of the transaction Google will receive $2.05 billion in cash and approximately $300 million in newly issued Arris shares, subject to certain adjustments provided for in the agreement. The deal would give Google an ownership stake of about 15.7% in Arris.

The deal is expected to close by the second quarter of 2013, subject to approvals and other closing conditions, the companies said.

Arris chairman and CEO Bob Stanzione called the agreement “transformational” for his company and said it will add to Arris’s video expertise.

"This transformational combination of two complementary businesses will create a leading end-to-end provider of today's video, data and voice products and tomorrow's next-generation IP-based broadband products," Stanzione said in a statement. "Ever-expanding consumer demand for bandwidth will continue to drive growth across cloud and network technologies we provide that enable innovative home entertainment products and services."

Arris and Motorola Home combined would have a global presence, with more than 500 customers in 70 countries, and would more than triple Arris’s pro-forma combined revenue to approximately $4.7 billion for the trailing 12-month period ended Sept. 30, 2012.

Arris outbid others for Motorola's Home unit, including U.K. set-top manufacturer Pace, which last week confirmed it had thrown its hat into the ring.

The combined entity will offer a wide array of products and solutions and will have an expanded customer base encompassing the full spectrum of broadband content and service providers.

According to Arris, the proposed acquisition also will increase Arris’s patent portfolio and provide a license to a wide array of Motorola Mobility patents. Arris will acquire approximately 1,000 patents from Motorola through the deal, with licenses to additional Motorola Mobility patents, and the combined company will have about 2,000 issued and in-process patents.

In May, Google closed the $12.4 billion cash acquisition of Motorola Mobility, driven largely by Google's desire to obtain the latter's patents. In August Google announced plans to lay off about 20% of Motorola Mobility's workforce, eliminating about 4,000 jobs, and subsequently said it may make additional cuts.

Google decided to sell the Home group “due to the costs and the fact that cable customers might be leery of doing business with Google,” the Wall Street Journalreported earlier this month.

In June, Google named Marwan Fawaz, formerly chief technology officer of Charter Communications, to run Motorola’s Home group -- a move some observers interpreted as an attempt to reassure MSOs that the business was in good hands. In an interview in October, Fawaz insisted that large cable operators and other service provider customers have not been “distracted” by the Google acquisition.

In a statement, Fawaz said, "We share a similar vision and strategy with Arris for the industry's migration to IP. The combination of our solutions, expert technologists and roadmaps promises to transform how service providers deliver the smart, simple connected home to consumers throughout the world."

Dennis Woodside, the Google executive appointed CEO of Motorola Mobility in May, said in a statement, "Our Home business has been a vibrant part of Motorola Mobility's portfolio, innovating while delivering strong financial performance. The industry faces its biggest technology transformation, and together Arris and Motorola will be able to accelerate related innovations such as the introduction of the IP Connected Home environments that service providers need and that their consumers crave."

Motorola’s Home generated revenue of $3.4 billion for the 12 months ended Sept. 30, 2012. According to Arris, the combination entity is expected to generate approximately $100 million to $125 million in annual cost synergies.

The cash portion of the consideration to be received by Google at closing will be funded through debt financing commitments from Bank of America Merrill Lynch and Royal Bank of Canada.

Evercore Partners is acting as lead financial advisor and Troutman Sanders is acting as lead legal counsel to Arris on the transaction. Bank of America Merrill Lynch is also advising Arris. Barclays is acting as financial advisor and Cleary Gottlieb Steen & Hamilton LLP is acting as legal counsel to Google.