Arris buys Google’s set top box unit for US$2.35bn

US cable equipment manufacturer Arris Group plans to acquire Google’s Motorola Home set top box unit for US$2.35bn in a cash and stock deal.
Arris has agreed to pay US$2.05bn in cash when it expects to close the deal in Q2 2013, and will give Google…

US cable equipment manufacturer Arris Group plans to acquire Google’s Motorola Home set top box unit for US$2.35bn in a cash and stock deal.

Arris has agreed to pay US$2.05bn in cash when it expects to close the deal in Q2 2013, and will give Google around US$300m worth of newly-issued shares. Post closing, this would give Google a stake of around 15.7% in Arris.

Google acquired the set top box assets earlier this year when it bought Motorola Mobility, a US phone and STB maker, for US$12.5bn.

Motorola Home generated revenues of US$3.4bn for the trailing four quarters ended 30 September 2012. Arris expects the deal will generate annual cost synergies of around US$100m-US$125m.

The transaction, which will be on a cash-free and debt-free basis, will increase Arris’ patent portfolio, bolstering its ability to provide next generation consumer video products and services. The cableco said the cash portion of its consideration is being funded through debt financing commitments from BofA Merril Lynch and Royal Bank of Canada.

Bob Stanzione, CEO of Arris, said: “Acquiring Motorola Home builds on Arris’ rich history, creating a global player with significant footprint, revenue and cash flow.  It also adds expertise in video and a larger presence in the home to our core strengths in voice and data, ensuring we are even better positioned to capitalise on and manage the evolution toward multi-screen home entertainment.

“We look forward to working with the Motorola Home team as we integrate their complementary product portfolio and engineering expertise to accelerate best-in-class end-to-end solutions to a broader customer base and increase value for shareholders.”

Evercore Partners is financially advising Arris and Troutman Sanders is acting as its legal counsel. Google hired Barclays for financial advice and Cleary Gottlieb Steen & Hamilton as legal counsel.

It is understood that Technicolor, the French audiovisual group and STB maker, was also in the running for Motorola Home. As was UK-based set-top box manufacturer Pace, which suspended its shares on 10 December as its relative size meant the deal would have constituted as a reverse takeover.

Pace was reportedly leading the pack in the bidding process, despite its size and having had a difficult 2011 in which two of its key suppliers suffered disruption due to floods in Thailand.

In July, Pace reported US$1bn in first-half revenues, compared with US$1.2bn in the same period last year.

Following the Arris/Google deal, Pace CEO Mike Pulli said: “We viewed the potential acquisition of Google’s Motorola Home business as an opportunity to accelerate our stated strategy, but only if real shareholder value could be delivered.

“Although we had the support of our major shareholders and committed facilities, we could not reach an appropriate conclusion to the potential transaction. We remain confident in our 2012 financial results as recently stated in our interim management statement on 14 November.”