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ARRIS offers $1.2B for Tandberg

Tue, 01/16/2007 - 7:51am
Jeff Baumgartner, CED

ARRIS looks to enter the digital video and video-on-demand (VOD) sector in a big way after offering $1.2 billion for Tandberg Television.

The offer, announced Monday, will enable ARRIS, a top maker of cable modems, embedded multimedia terminal adapters and cable modem termination systems, to widen its product scope and offer a portfolio that competes with industry magnates such as Cisco Systems Corp. and Motorola Inc., which have been on acquisition binges of their own. Cisco, for example, has added companies such as Scientific Atlanta and Arroyo Video Systems to its fold, while Motorola has expanded its digital and IP video capabilities by nabbing firms such as Broadbus Technologies, Vertasent LLC and Kreatel.

Tandberg, meanwhile, has also been on an acquisition warpath in recent years, complementing its once core encoding business with purchases of VOD backoffice specialist N2 Broadband and GoldPocket Interactive, a leading interactive television application and software company. Tandberg claims to own more than 25 percent of the global video processing market.

"It does not take a rocket scientist to figure out that the attraction between Tandberg TV and ARRIS is mutual, as the product lines are almost perfectly complementary," said ThinkEquity Partners analyst Anton Wahlman, in a research note.

Tandberg said its board and senior management are unanimously recommending that shareholders accept the ARRIS offer, believing that, together, the companies will create a stronger competitor. They also forwarded that ARRIS' solid U.S. presence and Tandberg's strength internationally would complement each other.

"The on-going industry consolidation amongst our key customer base creates a demand for companies that can offer an increasing scale and scope of supply on a global basis," said Tandberg Chairman Jan Christian Opsahl, noting that his company's offer represents a 47 percent premium on the average share price of Tandberg shares over the last 90 days. Opsahl has agreed to join the board of ARRIS once the deal is done.

"By bringing together these two market leaders we are able to expand on our vision to be the global leader in the provision of digital IP infrastructure and to enable voice, video and data to be delivered over integrated broadband networks from the content provider to the headend to the home," added ARRIS Chairman & CEO Bob Stanzione.

If the deal goes through, the combined company will have more than 1,600 employees and over 2,000 customers around the world. In addition to cable operators, the combo would continue to target telcos and other broadband service providers.

ARRIS said it expects the deal to be financed with about $200 million of new equity, $520 million of new debt, with the remainder coming from combined cash reserves. In November, ARRIS announced plans to raise $225 million, with a portion earmarked for "the funding of future acquisitions."

The deal for Tandberg is somewhat of a surprise, considering the most often-rumored acquisition target for ARRIS has been Concurrent Computer Corp., an Atlanta-based VOD server and software vendor.

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