CommScope (NASDAQ: COMM) this week announced its plan to spin-off its Home Networks business and other initiatives to reduce operating costs throughout the company.
The planned separation of CommScope’s Home Networks business and other operating expense reduction measures represent early steps in the company’s CommScope NEXT strategy to optimize its business portfolio, drive above-market growth, and control costs, the company said in a press release.
The business separation is intended to be executed through a tax-free spin-off to CommScope shareholders to form a new and independent publicly traded company. The separation is expected to be completed by the end of the first quarter of 2022.
Benefits of the separation
The business planned spin-off will allow CommScope and the Home Networks unit to focus on innovation and pursue strategic market opportunities, accelerating growth and unlocking greater value for their customers.
Key benefits of the separation, as directly stated by the company, include:
- Creating a clearer growth trajectory for CommScope, as well as greater opportunity for margin expansion, while focusing on providing market-leading solutions in wireless communications, broadband delivery and enterprise networking.
- Reducing complexity within CommScope, allowing it to focus on the core elements of the portfolio that will drive growth in the evolution of the networks it serves.
- Creating a standalone Home Networks business, a leading connected home solutions provider with an optimized cost structure and focused R&D and Sales teams, enabling an accelerated pace of innovation unlocking strategic value and growth in a “Connected Home” future.
- Providing Home Networks with greater focus and flexibility to develop its own technologies, go-to-market strategy and a best-in-class manufacturing model to better deliver home and consumer products.
- Allowing CommScope and Home Networks to each pursue separate strategies, creating two distinct identities and more targeted investment opportunities, providing Home Networks with greater opportunities to access capital.
CommScope will continue to be led by Chuck Treadway, president and CEO, and its current management team. Treadway commented:
“Since I joined CommScope last October, the board and management team have been undertaking a comprehensive review of our portfolio of assets and how each contributes to our long-term growth strategy. As we proceeded with this review, it became clear that the Home Networks business’ distinct strategy, growth characteristics, investment requirements and returns on invested capital are not aligned with the rest of our portfolio.
We believe that Home Networks will be better positioned to deliver superior home and consumer-oriented products as an independent company. In addition, we are moving quickly to streamline costs to create greater financial flexibility to invest in our growth.
We expect the cost reduction actions we are taking in core CommScope to, at a minimum, offset Home Networks’ adjusted EBITDA and create savings we can reinvest in our business, which should result in post-spin leverage within core CommScope at no more than current levels.”
Following the completion of the spin-off transaction, CommScope will be composed of the following three business segments, per the company's statement:
• Broadband Networks: Dedicated to serving the telco and cable provider broadband market as a leading equipment manufacturer. The segment is focused on growing its current portfolio and deployment of DAA and virtualized platforms and driving investments to expand fiber capacity, fiber connectivity and network orchestration.
• Venue and Campus Networks: Targeting both public and private networks for campuses, venues, data centers, and buildings. Venue and Campus Networks is focused on driving performance in its RUCKUS Wi-Fi 6 and cloud control platforms, ONECELL features to capitalize on 5G growth and virtualization, and driving high-density expansion in data centers.
• Outdoor Wireless Networks: Focused on the Macro and Metro Cell businesses and building metro cell power solutions and modularity design innovation. The segment is also working on the development of new technologies in cell site connectivity and other technologies to support telco carriers building their 4G and 5G networks.
Treadway concluded, “With today’s announcements, our CommScope NEXT strategy is well underway, and, as we move forward, growth, cost control and portfolio optimization will continue to be our priorities. We remain excited about CommScope’s potential, and with the core elements of our strategy intact, we are confident in our ability to deliver innovative solutions for network convergence for customers around the world.”