Harmonic Scoops Up Scopus for $51M
Video specialist Harmonic Inc. (Nasdaq: HLIT) has struck a $51 million deal to purchase Scopus Video Networks (Nasdaq: SCOP), an occasional competitor that Harmonic believes will help it grow internationally and in so-called “emerging” markets.
Under terms of the deal, Harmonic will pay $5.62 in cash for each share of Scopus -- a 46 percent premium over where the stock ended trading on Monday. Scopus shares shot up $1.47 (38.28%) to $5.31 each, in early trading Tuesday. (See Harmonic Snares Scopus.)
“We think that’s a pretty fair price for a full-control premium,” Harmonic CFO Robin Dickson said during a conference call this morning when an analyst pressed him about the price Harmonic is paying for Scopus, a company headquartered in Israel.
Harmonic hopes to close the deal by March 2009, believing it will create cost synergies (i.e. combining tradeshow activity) of between $8 million to $10 million on an annualized basis.
Although there is some product overlap between the companies -- covering as much as one fourth of Harmonic’s present portfolio -- Harmonic says the acquisition will be largely complementary from a product and customer basis and will open it up to a wide range of new opportunities outside the U.S., particularly in emerging markets such as Russia, India, and portions of Africa. (See Emerging Markets Offer Capex Hope.) About 75 percent of Scopus’s revenues are derived from outside the U.S.
The deal indicates “a further step in the globalization in our business,” Harmonic president and CEO Patrick Harshman said on this morning’s call. With Scopus’s contribution factored in, Harmonic estimates that its international revenues through the first nine months of 2008 would rise to 49 percent, from 43 percent.
Despite some product overlap, Harshman said Scopus will help Harmonic expand into the video “contribution markets,” whereby live video (news and sports events from broadcasters, for instance) is captured, encoded, and delivered to carriers over high-speed IP networks. Harmonic does not actively play in this market segment, Harshman said.
Scopus also brings to the table a decoding line that Harmonic does not presently possess. Scopus is looking to make some hay on the U.S. digital TV transition next February, offering cable operators a converter/receiver that downconverts incoming digital video signals to analog -- an important technology MSOs will need in order to fulfill a Federal Communications Commission (FCC) rule that requires most operators to deliver “must-carry” TV stations in both analog and digital format. (See Rebuilding Analog TV and FCC OKs Dual TV Carriage Rules.)
Harmonic officials also played up the fact that Scopus has little customer concentration, and no 10 percent customers. Some recent Scopus wins include British Broadcasting Corp. (BBC) , which tapped Scopus gear for some of its coverage of the Summer Olympics; RMT, a Brazil-based broadcasting company; dutch-based telecom KPN Telecom NV (NYSE: KPN); FN Cable Holdings, a pan-European service operator management group; and TVMax , a Texas-based cable operator. (See Scopus Wins in Eastern Europe.)
By comparison, Comcast Corp. (Nasdaq: CMCSA, CMCSK) and Dish Network LLC (Nasdaq: DISH)/EchoStar Corp. LLC (Nasdaq: SATS) were Harmonic’s largest customers at the end of the third quarter, representing 24 percent and 10 percent, respectively, of the vendor’s total revenue.
Scopus had revenues of $55.4 million through the first nine months of 2008, up 35 percent versus the year-ago period. Scopus has 300 employees, but Harmonic did not say how many of that total will stay on after the deal closes. Yaron Simler, the CEO of Scopus, previously served as president of Harmonic’s Convergent Systems Division. Scopus CTO Adi Bonen also hailed from Harmonic.
Optibase favors deal
Optibase Ltd. (Nasdaq: OBAS), a video gear company that holds a 36 percent stake in Scopus and serves as Scopus’s principal shareholder, said today it is on board with the deal, and has entered into a “voting agreement” with Harmonic. Depending on when the deal closes, Optibase expects to receive cash consideration of $28.7 million and to record capital gains of between $4.1 million and $4.8 million.
More deals to come?
Harmonic has made no bones about the fact that it’s interested in expansion via acquisition. In January, hot off its $15.5 million acquisition of video transcoding firm Rhozet Corp. and a larger, earlier deal for the video-on-demand assets of Entone Inc. , Harshman revealed that his company was looking to grow the business via the pursuit of “selective acquisitions.” (See Harmonic Hints at Acquisition Strategy , Harmonic Seals Rhozet Deal, Harmonic's Mobile Video Marriage, Harmonic Spends $45M on Entone VOD-Ware, and Lifetime Picks Harmonic.)
Harshman did not reveal much more detail at the time, but did acknowledge that Harmonic would likely go after “best-in-class technology that really fits who we are, and how we want to define ourselves in this market… obviously around video delivery.” (See Harmonic to Tune Up Video Strategy? )
“We will consider additional acquisitions and opportunities to grow our business,” Harshman said today.
— Jeff Baumgartner, Site Editor, Cable Digital News