In a major strategic move, Arris Group Inc. (ARRS) entered into an agreement to sell approximately 10.6 million of its common stock to Comcast Corp. (CMCSA). The total consideration of the deal is $150 million. The cable TV equipment vendor stated that this agreement is part of its previously announced acquisition of the cable set-top box business of Motorola Mobility, a subsidiary of Google Inc. (GOOG).
Last December, Arris decided to purchase the set-top box business of Motorola Mobility for $2.35 billion. Of this, $2.05 billion will be paid in cash and $300 million worth common stock of Arris will be given to Google. The Comcast deal will reduce the total number of Arris’ shares to be issued to Google while raising the cash consideration by $150 million.
Consequently, both Comcast and Google will command 7.85% of the total outstanding shares of Arris. The completion of the Comcast deal is subject to the successful transition of the Motorola cable set-top business to Arris, expected to take place by the second quarter of 2013.
The important feature of this deal is that Arris will get two large companies namely Comcast and Google as its investors that have financial interest in the success of its cable set-top box venture. Notably, Comcast is the largest customer of Arris. Presently, Arris is a small contender in the high-speed video and Internet delivery market.
The acquisition of the Motorola set-top box business will undoubtedly help Arris strengthen its foothold in the video offerings market. Further, this deal will strengthen Arris’ patent portfolio and provide access to several patents of Motorola Mobility.
Currently, Arris, Comcast and Google have a long-term Neutral recommendation. While Comcast and Google have a Zacks Rank #3 (Hold) for the short term, Arris has a Zacks Rank #2 (Buy).