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Arris rises on plans to buy Google's set-top unit

NEW YORK (AP) -- Arris Group's stock rose to its highest level in more than five years on Thursday following news that it is buying Google's TV set-top business for $2.35 billion, which could be a transformative deal for the relatively small company.

But not everyone was upbeat about Arris' ability to benefit. One analyst cut his rating on the company, saying it may have paid too much.

THE SPARK: On Wednesday Google Inc. said it was selling the division, which it had swallowed up in its acquisition of Motorola Mobility earlier this year, to Arris in a cash-and-stock deal.

THE BIG PICTURE: The transaction gives Arris Group Inc., a provider of high-speed Internet equipment, an opportunity to become a bigger player in the delivery of video.

In the past year ending in September, Motorola's set-top operations generated $3.4 billion in revenue. That makes it twice as big as Arris, whose revenue totaled $1.3 billion during the same period.

If the deal wins regulatory approval, Arris expects to take over the division before the end of June.

THE ANALYSIS: Arris may have overpaid for the Motorola business, said Jefferies' James Kisner in a client note Thursday. He had anticipated a sale price between $1 billion and $1.5 billion, given his worries that the division's revenue will decline.

While he acknowledged that the deal could hold some benefits for Arris, such as providing a new, strong influx of cash from the business, Kisner said that buying the set-top business "dramatically tempers" Arris' growth rate.

Kisner cut Arris to "Hold" from "Buy" and reduced its price target to $14 from $17.

SHARE ACTION: Shares of Arris Group Inc. rose 47 cents, or 3.2 percent, to $15.01 in afternoon trading. The stock hit $15.90 earlier in the session, its highest point since July 2007.