Technicolor, Cisco Seal the Deal

Technicolor Takes over Cisco’s CPE Division
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Technicolor said it has wrapped up its $600 million cash and stock deal for Cisco Connected Devices, the unit that makes set-tops, cable modems, gateways and other consumer premises devices.

The deal brings with it another round of consolidation in the challenging set-top box market, and comes amid  Arris’s pending merger with U.K.-based Pace Plc.  Arris and Pace are currently the top two set-top makers based on market share. Once the recent M&A wave settles, Arris will top the market, followed by Technicolor. With the agreement salted away, Technicolor  will shore up its position at Charter Communications, which selected Cisco as a key supplier for its new “Worldbox,” a hybrid IP/QAM device that will utilize a downloadable security platform. Cisco is also one of theknown developers of a new “XG2” device for Comcast’s X1 platform.

Cisco will still keep its hand in the CPE game. Tied into the deal, Technicolor and Cisco have also struck up a “strategic collaboration agreement” in which they will develop next-gen video and broadband technologies, with cooperation extended to their initiatives around the so-called Internet of Things. Cisco, which received $450 million in cash, also gets 21.4 million newly issued Technicolor shares that were worth $150 million when the deal was announced. As a result, Cisco holds 5.2% of Technicolor's capital share (16.7 million are subject to an 18-month “lock up,” and 4.6 million to a 12-month lock-up). Additionally, Hilton Romanski, the Cisco’s chief strategy officer, has been appointed to Technicolor’s board.

Technicolor and Cisco still have some finishing touches to make. They said the deal has closed in all operating geographies, except in Brazil, where it still needs local stamps of approval, and in Colombia, where Cisco Connected Devices’ operations have been carved-out pending a decision by the country’s antitrust authority.

They announced the deal in July. In anticipation of the close, Technicolor recently tapped former Alcatel-Lucent exec Luis Martinez Amago as president of its Connected Home division for the North American market, supporting Technicolor’s business with the region’s cable operators, telcos, satellite service providers and OTT players.

Technicolor also tweaked how the deal impacts the financials of its Connected Home unit, which included an adjusted EBITDA in excess of  €200 million ($213.5 million) by year end 2016; adjusted EBITDA margin of 8% to 9% by 2017, and financial synergies of more than  €100 million ($106.7 million) per year, with a run-rate level to be reached by 2018. 

Although Cisco has effectively backed out of the set-top box business, it still plans to be a force on the cloud/network side of the video technology business with MVPDs and OTT providers.  For example, it recently shored up its OTT and multiscreen capabilities with the acquisition of 1 Mainstream, a startup that is being integrated with Cisco’s “Infinite” cloud video suite/platform.