In a deal that should reshape the cable MSO technology ecosystem, CommScope (NASDAQ: COMM) has reached an agreement to buy ARRIS International plc (NASDAQ: ARRS) for $31.75 per share in cash. The total purchase price of approximately $7.4 billion includes the repayment of debt. The company also announced that The Carlyle Group has again taken an ownership position in CommScope via a $1 billion minority equity investment that will help finance the ARRIS purchase. CommScope expects to close the deal in the first half of next year, subject to the usual approvals processes.
The per share purchase price is a premium of approximately 27% to the volume-weighted average closing price of ARRIS’s common stock for the 30 trading days ended October 23, 2018, which is when rumors of the deal first surfaced. In addition to the $1 billion from Carlyle, CommScope plans to use cash on hand, borrowings under existing credit facilities and approximately $6.3 billion of incremental debt. CommScope says it has received debt financing commitments from J.P. Morgan Securities LLC, BofA Merrill Lynch, and Deutsche Bank Securities Inc. for this incremental debt.
Carlyle acquired CommScope for $3.9 billion in a deal that closed early in 2011 (see "Carlyle Group to take CommScope private"). CommScope then went public again in 2013.
If consummated, the present acquisition will combine CommScope’s line of wireless and wired connectivity products with ARRIS’s wired and wireless communications systems principally aimed at cable operators and enterprise networks. Those products include optical systems, including some for fiber to the home (FTTH) applications (see, for example, “ARRIS unveils NVG578 PON gateway platform for network migration”). The scope of the combined lines helped drive the deal.
“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 Eddie Edwards, president and CEO at CommScope. “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.
The new CommScope would have approximately $11.3 billion in revenue and adjusted EBITDA of approximately $1.8 billion, based on results for the two companies for the 12 months ended September 30, 2018. Of course, CommScope also plans to unlock cost-saving synergies; the company expects to see annual run-rate cost reductions of at least $150 million within three years post-close. More than $60 million is anticipated to be realized in the first full year after close and more than $125 million after the second year post-close, primarily in direct procurement and SG&A savings. CommScope also predicts the deal to prove more than 30% accretive to adjusted earnings per share by the end of the first full year after consummation, excluding purchase accounting charges, transition costs, and other special items.
Meanwhile, the combination should more than double CommScope’s total addressable market to more than $60 billion, the company asserts. Key product areas will include:
- Converged small cell offerings for licensed and unlicensed wireless spectrum
- Complementary wired and wireless communications infrastructure
- Integrated broadband access
- Private network offerings
- Connected and smart home products.
Edwards will continue to lead the combined company as president and CEO, with ARRIS CEO Bruce McClelland and other members of the ARRIS management team coming aboard in currently undefined capacities. CommScope will maintain its Hickory, NC, headquarters, although the combined company will continue to have what CommScope calls “a significant presence” in ARRIS’s current Suwanee, GA, facility. The ARRIS headquarters is in Saltaire, West Yorkshire, UK.
Both companies have a history with General Instrument, so this will be a reunion of sorts. ConmScope spun out of General Instruments in 1997, while General Instrument’s cable systems business bounced to Motorola and Google before ARRIS acquired it in 2013. ARRIS’s PON systems will stir memories at CommScope as well; CommScope launched a line of PON systems in 2012 before selling it to ADTRAN in 2016 (see “CommScope launches EPON and GPON product line” and “ADTRAN expands cable MSO footprint via CommScope FTTH systems acquisition”).
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