CommScope announced Thursday it will spin off its Home Networks business, one move among others in the works that are designed to reduce operating costs throughout the company.
The move follows a recent wave of speculation that CommScope was preparing to make a big move centered on a struggling unit that makes set-tops and other types of consumer premises equipment (CPE). Among the possibilities included a sale, the formation of a joint venture or a transaction that would get the unit off the books. The third of those options is the one CommScope plans to take forward.
The coming transaction is intended to be executed through a tax-free spin-off to CommScope shareholders to form a new and independent publicly traded company that will pursue its own strategies along with focused R&D and sales teams. CommScope also expects the move to provide the Home Networks unit with greater opportunities to access capital.
CommScope, which obtained the Home Networks unit via its acquisition of Arris in 2019 for $7.4 billion, expects to complete the spin-off transaction by the end of Q1 2022.
CommScope also confirmed that the decision to separate the Home Networks business ties into CommScope Next, a strategy designed to optimize the company's portfolio, "drive above market growth" and control costs. That initiative also includes an evaluation of the company's full business that will result in the reallocating of resources to those that it believes offer the most potential and value in the near and long term. That initiative, formed under new CEO Chuck Treadway, could also lead to CommScope shedding pieces of the business or expanding it through strategic acquisitions.
The evaluation led CommScope to believe that the Home Networks unit, which saw revenues drop by 31% in Q4 2020, was not the right fit going forward.
"As we proceeded with this review, it became clear that the Home Networks business' distinct strategy, growth characteristics, investment requirements and returns on invested capital are not aligned with the rest of our portfolio," Treadway said in a statement. "We believe that Home Networks will be better positioned to deliver superior home and consumer-oriented products as an independent company."
CommScope also outlined some benefits that will be reaped from the separation, believing that it will help CommScope and the spun-off unit to "focus on innovation and pursue strategy market opportunities."
More specifically, CommScope believes it will pave the way for margin expansion while it continues to focus on wireless communications, broadband delivery and enterprise networking. CommScope said the spin-off will also drive some complexity out of its business.
Once the spin-off is completed, CommScope's business will be made up of three segments: Broadband Networks, Venue and Campus Networks, and Outdoor Wireless Networks.
Light Reading will have more coverage of this move following a call CommScope is hosting Thursday morning to discuss the plan in more detail.
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— Jeff Baumgartner, Senior Editor, Light Reading