Arris Cleared to Buy Google Unit

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Arris Group Inc. (ARRS), a cable equipment manufacturer, announced that it has got the legal clearance to acquire Motorola mobility’s Home business. Motorola Mobility is a subsidiary of search engine giant, Google Inc. (GOOG). 

Clearing the regulatory hurdle of U.S. Department of Justice, Arris can now go ahead with its proposed $2.35 billion bid to acquire Motorola Home, which will make it one of the dominant players in the set-top box (STB) market. The acquisition is expected to close on Apr 17, 2013.

In Dec 2012, Arris decided to acquire the STB and other related businesses of Motorola Mobility for around $2.35 billion. Arris will pay $2.05 billion in cash, raised through debt financing and $150 million in newly-issued shares of the company, which in turn will give Google a 7.85% stake in Arris.

For the remaining $150 million, Arris will issue 10.6 million shares to Motorola Home customer Comcast Corporation (CMCSA). Although this move will reduce the Arris equity stake that Google was supposed to receive, its cash position will increase by $150 million.

As part of the transaction, Arris will get access to 2,000 patents including video conferencing and digital rights management of Motorola. Arris will also acquire the right to license additional intellectual property from the handset manufacturer. However, Motorola’s patent-infringement litigation with TiVo Inc. (TIVO) remains a matter of concern for Arris.

The acquisition will considerably boost Arris’ topline and will generate more than $100 million in cost synergies. However, Arris’ shareholders did not react positively to the news as the stock slumped almost 5% during the day trade in Nasdaq on Apr 15.

Research firm, Synergy Research Group, stated that the Arris/Motorola tie-up may pose serious competitive pressure on Cisco System, the undisputed leader in CMTS (cable modem transmission system). We believe that acquiring the STB unit is a positive for Arris as it will have access to Motorola’s wider market and expanded customer base.

Currently, Arris carries a Zacks Rank #3 (Hold).

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