The Carlyle Group makes $1 billion equity investment into CommScope to make the deal happen

In a huge merger among telecom industry vendors, CommScope has agreed to purchase Arris in an all-cash deal with a total purchase price of $7.4 billion, $31.75 a share.

After a widely reported series of talks, the deal was announced by CommScope this morning. Both companies have market capitalizations in the area of $5 billion.

Notably, the $7.4 billion figure, CommScore said, factors in debt financing for the purchase. The Wall Street Journal pegs the base value of the transaction, minus interest, at $4.93 billion. 

Following closure of the deal, Eddie Edwards will continue in his role as president and CEO of Hickory, N.C.-based CommScope. Arris CEO Bruce McClellan and other key Arris managers will be joining the combined company. CommScope said it will “maintain a significant presence” within Arris’ Suwanee, Georgia headquarters.

The Carlyle Group has reestablished an ownership position in CommScope through a $1 billion minority equity investment as part of CommScope’s financing of the transaction.

Related: Arris Close to $5.6B Purchase by CommScope: Report

“After a comprehensive evaluation of our business and the evolving industry we operate in, we are confident that combining with Arris is the best path forward for CommScope to grow and provide the greatest returns for shareholders,” said Edwards, in a statement. “CommScope and Arris will bring together a unique set of complementary assets and capabilities that enable end-to-end wired and wireless communications infrastructure solutions that neither company could otherwise achieve on its own. With Arris, we will access new and growing markets, and have greater technology, solutions and employee talent that will provide additional value and benefit to our customers and partners.”

Added McClelland said, “CommScope is an ideal partner for Arris. In addition to providing immediate and substantial cash value to our shareholders, we are excited for what this combination will deliver for our customers, partners and employees around the world. Today’s agreement is a testament to the strength of Arris: our leading technology, talented employees and established competitive position. With CommScope, we expect to further advance Arris’ strategy to drive innovation across our iconic brands and pioneer the standards and pathways for tomorrow’s personalized, connected always-on consumer experience. Arris will become part of an even stronger, more global industry leader, and I look forward to working with the CommScope team to achieve great results for the combined company.”

Arris paid $800 million to acquire Ruckus Wireless last year and had been diversifying its product line to match the wireless convergence of its cable operator client base. But after its $2.1 billion purchase of Pace in 2016, it remained heavily ensconced in the fading pay TV set-top box business, with 35% of its revenue coming from that sector.

CommScope, meanwhile, not only offers an escape for Arris, but a synergistic partner, with the two tech vendors selling complimentary products in emerging areas like CBRS.

BTIG Research analyst Walter Piecyk said the combined companies could realize $300-$450 million in annual cost synergies.

“Wireless operators are densifying and entering the broadband market and cable operators are likely to build wireless networks,” Piecyk wrote in a note to investors last week. “CommScope and Arris have complementary products that address these diverse sets of service providers. As an example, Arris has developed CBRS access points that will appeal to wireless and cable operators and CommScope is developing a SAS (Spectrum Access System) that enables the functionality of those access points.”

CommScope and Arris combined control approximately 15,000 patents and about $800 million in average annual research and development investments. Their combined company is expected to serve customers across more than 150 countries.

For the 12 months ended September 30, on a pro forma basis, the combined company would have generated revenues of approximately $11.3 billion with adjusted EBITDA of approximately $1.8 billion.

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