CommScope on Thursday confirmed it will acquire Arris for about $7.4 billion, including the assumption of debt, as the telecom industry vendor readies to capitalize on trends like network convergence and the arrival of 5G.
CommScope said it expects the all-cash deal for $31.75 per share to result in annual cost synergies of $150 million within three years. BTIG analyst Walter Piecyk in a Thursday post noted the figure seems pretty conservative as the firm had expected at least $300 million in synergies.
Arris expanded its portfolio into the enterprise market with the purchase of Ruckus Wireless last year for $800 million, but its set-top box business has remained challenged. As Light Reading pointed out, recent U.S. tariffs on Chinese goods were also poised to impact the vendor, adding $200 million per year to broadband equipment costs.
Along with enterprise offerings, Arris’ main focuses are consumer premises equipment, including set-tops, modems and gateways, and network and cloud infrastructure and software for broadband and video.
The combined CommScope and Arris can offer complementary wired and wireless communications products, as both cable and wireless service providers continue to show interest in new areas that the two vendors have been working in, including CBRS.
“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 Oct. 25. “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.”
After the deal closes, anticipated in the first half of 2019, Eddie Edwards will remain chief executive of CommScope, with Arris CEO Bruce McClelland and other senior leaders joining the combined company.
“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.”
Together Arris and CommScope hold approximately 15,000 patents and invest about $800 million in average annual research and development. The companied company’s global service footprint is expected to span more than 150 countries.
Asset manager The Carlyle Group is helping to finance the deal through a $1 billion equity investment, equal to about a 16 percent stake in CommScope.