Commscope confirms Arris takeover for USD 7.4 billion

Thursday 8 November 2018 | 13:57 CET | News

Commscope has confirmed an agreement to acquire Arris for USD 7.4 billion including debt. The deal will more than double Commscope's annual revenues, strengthening its position in the wireless market with the takeover of Ruckus Networks and expanding its addressable market to the home gateway and video delivery markets. The Carlyle Group has agreed to invest USD 1 billion for a 16 percent stake in Commscope to help finance the acquisition. 

Arris shareholders will receive USD 31.75 per share cash, a 27 percent premium on the average price in the 30 days to 23 October when rumours of a Commscope bid first emerged. Pending regulatory and Arris shareholder approval, Commscope aims to close the deal in the first half of 2019. 

Commscope expects at least USD 150 million in cost savings from the increased scale of the merged company, to be realised within three years of closing. Over USD 60 million should be realised in the first year alone, when the company's adjusted EPS will receive a 30 percent bump and Arris will add USD 1 billion in operating cash flow. 

Double revenues

Together the two companies had pro forma revenues in the year to September of USD 11.3 billion and adjusted EBITDA of USD 1.8 billion. Arris generated in the same period USD 6.7 billion in revenue, including USD 3.9 billion from CPE, USD 2.2 billion from network and cloud equipment and USD 568 million from enterprise networks (reflecting only a partial year of Ruckus since its acquisition in December 2017).

The companies expect that the combination of their wireless, wired and broadcast equipment plays into key market trends and growth segments such as converged networks, 5G and fixed wireless, private networks, smart homes and small cells. They will also have a stronger basis for R&D, with around 15,000 patents and USD 800 million in average annual spending.

In addition to Carlyle returning as a Commscope shareholder, the company has agreed USD 6.3 billion in debt financing for the deal. Upon completion of the transaction, CommScope expects net leverage of 5.1x, based on pro forma EBITDA for the year to September and expected synergies for the first year. Given the increased scale and cash flow generation, as well as both companies’ track records of successful integration, CommScope expects to rapidly deleverage to 4.0x in the second full year after closing and 2.0-3.0x in the longer term.

Commscope's Eddie Edwards will continue as CEO of the combined company, and Arris CEO Bruce McClelland and other members of the Arris leadership team will join the group. The HQ will remain in North Carolina, with a continued significant presence at Arris's base in Georgia. 

Revenues below guidance

Arris and Commscope also reported their third-quarter results with the merger announcement. Commscope posted revenues up 2 percent to USD 1.15 billion, and net profit improved to USD 64 million from USD 51 million a year ago, slightly below its guidance. 

Cost-cutting efforts will continue in Q4 and the new year amid "challenging" market conditions, especially among North American operators spending more conservatively, the company said. Commscope lowered its guidance for full-year results to revenue of USD 4.525-4.575 billion, operating profit of USD 461-484 million, EPS of USD 0.70-0.72 and operating cash flow over USD 480 million. 

Arris's revenues were also below guidance, down 4.5 percent to USD 1.65 billion. EPS was better than expected at USD 0.26, helped by its share buyback programme, but still down sharply from USD 0.47 a year ago. The company generated USD 221 million of cash from operating activities during the quarter and ended the period with USD 520 million of cash resources. Arris has spent USD 353 million in the year to date buying back shares. 

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Categories: General
Companies: Arris / CommScope / Ruckus Networks
Countries: World
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