Despite concerns over the high price, financial and industry analysts generally lauded the bold move by Arris Group Inc. (Nasdaq: ARRS) to scoop up digital video specialist Tandberg Television for $1.2 billion in cash and stock, as announced yesterday. (See Arris Pounces on Tandberg TV.)

If all goes well, the pact could finally realize Arris's dream of becoming a third force in cable, behind Cisco Systems Inc. (Nasdaq: CSCO) and Motorola Inc. (NYSE: MOT), by combining its data and VOIP technology with Tandberg TV's digital video and IPTV expertise.

"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," wrote Anton Wahlman, senior analyst at ThinkEquity LLC . "We believe the new combined company would be a leader in many areas."

Naturally, executives of Arris and Tandberg TV agreed. On a conference call with analysts today, they predicted big things for the merged company in digital video encoders, video-on-demand (VOD) software, IPTV, and edge management systems.

For years, Arris has enjoyed a strong presence in the steadily growing cable modem, cable modem termination system (CMTS), and embedded multimedia terminal adapter (E-MTA) markets. But it has been aching to enter the even more promising video equipment and software markets through some type of major acquisition, generating plenty of speculation about potential targets.

"It's a matter of striking when the opportunity is present," Arris chairman and CEO Bob Stanzione said. "We believe the sweet spot is bigger than VOIP and data for cable."

Tandberg TV, meanwhile, would get a better crack at the North American cable video equipment market, the executives contended. The British company has fared better in the satellite TV, telco TV, IPTV, and broadcasting areas.

The North American cable market is "our single largest market of opportunity," said Eric Cooney, CEO of Tandberg TV.

Most analysts took a sunny view of the deal, citing benefits to Arris such as customer diversity, a leadership role in the video markets, worldwide reach, and markedly higher profit margins.

"Arris could not have found a better partner, in our view, as the combination appears to address every major objective management was hoping to achieve through its well-publicized M&A strategy," wrote Jason Ader, a senior analyst at Thomas Weisel Partners . "We also like that Arris appears to be executing this transaction from a position of operational strength."

But even the thumbs-up reviews contained doubts. For instance, Wahlman questioned the $1.2 billion price tag, calling it steep for a company with only moderately higher operating margins than Arris's.

Other industry observers wondered how the new Arris would compete with Cisco and Motorola in digital set-top boxes. Although Tandberg TV has developed "strategic partnerships" with several set-top players and other tech vendors, the new company would be competing directly with at least some of them.

Arris and Tandberg TV officials expect to realize "revenue synergies," as well as possible "cost synergies," through the proposed merger. But, beyond saying they plan no staff layoffs, they declined to discuss the size of possible gains or savings.

Arris, which reported revenues of about $657 million though the first nine months of 2006, estimates that it generated $220 million to $230 million in revenues for its fourth quarter. Tandberg TV estimates that 2006 revenues will come in at about $350 million.

— Alan Breznick, Site Editor, Cable Digital News