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Analysts like ARRIS-Tandberg marriage

Tue, 01/16/2007 - 7:40am
Jeff Baumgartner, CED

Early reaction from industry analysts suggest that pairing ARRIS and Tandberg Television will place the combined entity on solid competitive footing and position it to cross swords with the likes of Motorola Inc. and Cisco Systems Corp.

"We've been anticipating this deal for some time, as ARRIS really needed to make a splash in the video space and to keep pace with Cisco and Motorola in the cable MSO market, where operators are beginning to look at switched digital video and video-over-DOCSIS," said Jeff Heynen, directing analyst, broadband and IPTV for Infonetics Research), in reaction to the deal announced Monday.

This "gutsy move" by ARRIS will create a "third force" in cable TV and video technology, added ThinkEquity Partners analyst Anton Wahlman, in a research note.

"While some pieces of the larger puzzle clearly remain, this merger creates the standout cable/video company by size and breadth behind Motorola and Cisco," he added, estimating that combined 2006 revenues of ARRIS and Tandberg would be roughly $1.25 billion.

"While ARRIS has been looking for a strategic acquisition for some time, they couldn't have found a better partner that transforms the company into a global leader in providing video, voice, and data equipment," said Oppenheimer & Co. Inc. Alan Bezoza, in a research note.

"We also feel ARRIS will help Tandberg gain access into the elusive U.S. cable encoder market."

He reiterated a "buy" rating on ARRIS shares and a target of $16. ARRIS shares were trading at $12.84 (down 26 cents) in early trading Tuesday.

Bezoza also said ARRIS is paying a "fair" price at $1.2 billion, about 20 times Oppenheimer's 2007 EPS estimate for Tandberg.

Wahlman, meanwhile, pored over the possibility that Tandberg could receive a competing bid, pointing out that Cisco and Motorola are the only two out there with "the muscle and the will" to fight ARRIS' offer.

But even if one of those two stepped up with a bid, he said, cable operators would "likely bark loudly," and such a deal would possibly see government intervention.

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