Cable customers' growing desire for "open"networks and its own need to bulk up against heavyweight competitors prompted HarmonicInc. to buy digital-broadcasting-equipment maker DiviCom Inc.
Harmonic, a provider of fiber-based digital-broadbandnetworks for cable and other broadcasting platforms, agreed last week to pay roughly $1.5billion to acquire DiviCom from its parent, C-Cube Microsystems Inc.
C-Cube plans to sell or spin off its remainingsemiconductors business, with shareholders getting the proceeds.
Although it has become a key infrastructure supplier togiants like AT&T Broadband & Internet Services, Harmonic needed to augment itscore business of hybrid fiber-coaxial cable-network elements such as transmitters,dense-wave-division-multiplexing gear, optical nodes and MPEG-2 multiplexers and encoders.
DiviCom -- which C-Cube bought for about $150 million in1996 -- provides cable and satellite operators with digital-headend equipment such asencoders, multiplexers and set-top-box controllers based on "open" internationalstandards for interoperability.
This recently won DiviCom headend business from CablevisionSystems Corp. and MediaOne Group Inc., which are using "open" platforms inselected major-market rebuilds, instead of relying on proprietary platforms from GeneralInstrument Corp. and Scientific-Atlanta Inc.
Harmonic, with DiviCom, is better positioned to exploitthat slowly growing trend toward open systems, as well as to expand into each other'sexisting customer bases.
"They're gaining perceptual favor among the MSOs forhaving an alternative solution to the proprietary GI and S-A stuff," Paul KaganAssociates Inc. senior analyst Leslie Ellis said. "They're banking on more peoplesaying, 'I want to have what's really open.'"
Another driver may have been the ongoing acquisition spreeamong broadband-network-equipment vendors such as Lucent Technologies, Cisco Systems Inc.and Motorola Inc., the latter of which is buying GI.
"When you double the size of your company, it makesyou a more credible player. It makes the industry more comfortable that you'll be aroundfor a while," said Ed Thompson, Harmonic's vice president of business development andone of the architects of the deal. "I also think this will help to expand ourposition in new product areas."
C-Cube -- which believed DiviCom needed to grow to competeeffectively -- wanted to monetize its DiviCom investment while the market was hot.
C-Cube shareholders will get 0.5427 Harmonic common sharesfor each C-Cube share, plus stock in the spun-off C-Cube Semiconductor or proceeds fromits sale.
Based on Harmonic's stock price at the time of the Oct. 27announcement, DiviCom would cost about $1.7 billion. But nearly $500 million got shavedoff during trading the following day, as Harmonic's share price tumbled.
The deal is expected to close in the first quarter of nextyear, and there is no "collar" on the terms to limit the impact of share-priceswings on its value.