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Who's Angling for Motorola's Cable Unit?

Jeff Baumgartner
6/29/2012
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12:35 PM -- Chatter about the fate of Motorola Mobility LLC 's Home division, which makes set-tops, cable modems and access gear, kicked into high gear soon after the company announced Thursday that Dan Moloney was resigning and being succeeded by former Charter Communications Inc. CTO Marwaz Fawaz. (See Motorola's Home Unit Hires New Leader .)

The industry insiders I talked to believe that this move, which keeps Home under the leadership of a cable guy, is an indication that Google (Nasdaq: GOOG) is starting to get anxious about unloading the unit, with some saying it's likely a buyer might appear by this fall.

Google Chairman Eric Schmidt tried to put a good face on things by telling shareholders earlier this month that Google bought Motorola Mobility for more than just its patents, but there aren't many folks we can find that actually believe that, particularly when it comes to Moto's cable business. We speculated in March that Google would eventually sell off Moto's cable business and identified some potential suitors. (See Why Google Will Dump Moto's Cable Biz.)

Now that Google's closed the deal, it's time to refresh that list, based on what we think could happen and what we're being told might happen as various parties jockey for position. From our discussions, it's quite clear that the cable operators want Motorola Home in friendly hands (i.e., not Google's) and some assurances that they'll have someone to keep Cisco Systems Inc. (Nasdaq: CSCO) honest. Here's our latest list of candidates.

  • Ed Breen & Company
    Although it sounded pretty crazy at first, the idea that Edward Breen (the ex-chief of what used to be Motorola Inc. and General Instrument Corp.) might get the band back together (two of his former Moto comrades, Dan Moloney and Geoff Roman, will soon be free agents) to make a play for Home and create what would amount to the second coming of General Instrument, seems to make more and more sense as the weeks and months go by. But there's a lot that would need to happen, and happen very fast, for this to come together. Breen's still running Tyco International Ltd. (NYSE: TYC; London: TYI), and he'd need to line up the financing. If the MSOs truly want to keep Motorola Home in the cable family and keep Cisco in check, then perhaps Comcast Ventures and Time Warner Investments will put some money in to help make it happen. (See Will Moto Go Back to the Future?.)

  • CommScope
    This is a relatively new idea that's starting to circulate, though it's unclear if CommScope Inc. and its Chairman, cable vet Frank Drendel, would make a run on its own or team up with Breen's group to grab a stake in the new company. But CommScope's backed by a firm with deep pockets, The Carlyle Group LLC , and has been on a bit of an M&A tear lately. It has just reorganized to break out a broadband division, so perhaps it might see some sense in pulling the trigger on a big deal that would significantly raise its cable profile. (See CommScope Reorgs Business Units.)

  • Juniper Networks
    Juniper Networks Inc. (NYSE: JNPR) already sells routers to the cable guys, but it's flirted with doing much more, as it once had a cable modem termination system (CMTS) in its lineup. There's not a huge product overlap between the Juniper and Motorola Home, and Juniper could serve as a nice cable counter to Cisco if it could find a way to expand its cable equipment portfolio. (See Juniper Does Docsis (Again) .)

  • Pace
    Buying Motorola Home would make Pace plc the No. 1 supplier of set-tops in the U.S. and allow it to get into a bunch of new businesses. Pace has been mentioned as a possible candidate, but it will likely need help to come up with enough cash to land the Motorola division.

  • Huawei Technologies
    Yes, it's still being mentioned in the discussion, despite the fact that the U.S. government, not to mention some of the domestic cable guys, just flat-out don't trust the China-based giant. Although it's been cutting back in the U.S. recently, Huawei Technologies Co. Ltd. 's been anxious to establish a sizable domestic cable business and Moto Home would fit the bill. But even if it really wants the unit, the barriers appear to be so high that Huawei is viewed as the dark horse. (See Huawei Packs On Cable Muscle , More Bother for Huawei, ZTE and Huawei Cuts Some US Staff.)

    Agree or disagree with what we've put on the table? Have some ideas of your own? Weigh in on the message board to share your thoughts.

    — Jeff Baumgartner, Site Editor, Light Reading Cable

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    Jeff Baumgartner
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    Jeff Baumgartner,
    User Rank: Light Sabre
    12/5/2012 | 5:28:52 PM
    re: Who's Angling for Motorola's Cable Unit?


    I haven't heard any numbers, but when Moto was trying to sell what was then called its home and networks mobility business in 2009, the suggested asking price was in the realm of $4.5B. Doubt that  Google could unload it for that, but it's at least a high-ceiling benchmark to consider.  JB


     




    AESerm
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    AESerm,
    User Rank: Light Beer
    12/5/2012 | 5:28:49 PM
    re: Who's Angling for Motorola's Cable Unit?


    You'd also mentioned ARRIS on the earlier list. Are they still in the mix? An even stronger pure cable play than Commscope, which changed its complexion upon acquiring Harris for $2.7b in 2007. But Carlyle doesn't just back Commscope. It bought CTV for $3.9b in 2010. All six buyout-savvy members of the Board apart from Drendel joined after the Carlyle acquisition. Interesting. Drendel has served in chairman's role since 1997 when the company was spun off from... General instrument!

    Jeff Baumgartner
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    Jeff Baumgartner,
    User Rank: Light Sabre
    12/5/2012 | 5:28:49 PM
    re: Who's Angling for Motorola's Cable Unit?


    We mentioned Ericsson on our first go round on who might be interested in Moto, and I'm being told not to count them out... I'll have more on why soon. JB

    Jeff Baumgartner
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    Jeff Baumgartner,
    User Rank: Light Sabre
    12/5/2012 | 5:28:42 PM
    re: Who's Angling for Motorola's Cable Unit?


    You raise some great questions. I have to say that my first reaction to the news was that it was an indication that Google might actually hold onto this asset, like they were perhaps putting a team in there for the long-haul.


     But Fawaz has a pretty good track record at helping to turn businesses around when things looked fairly bleak adn then got them ready for the next, big step. He joined Adelphia following its darkest days to get that place in shape to the point that it could be sold to Comcast & TW Cable; then he was part of the crew that helped Charter dig out of Chapter 11... instead of a sale, they went public again, and now you've got to wonder what will happen there now that Rutledge is in charge and if he can improve Charter's numbers any further.   And Fawaz also has some VC experience from his days at Paul Allen's Vulcan. 


    So Fawaz knows his way around the cable world better than anyone and he understands the VC angle, offering a good mix to help Google at least pursue a sale and see who's out there, knowing that Moto could have a bear of a time trying to sell cable products long-term if the MSOs don't trust the owner.


    So, one could argue that Google agreed to bring in this team to push this forward and put some fresh eyes and  minds on the task.  As for Moloney's reasons, I don't have a firm answer, though there's some belief that he might try to connect with Breen to take a new approach on acquiring that business, knowing that there are still many ex-GI folks still there (at least alot more of them than there are ex-Scientific-Atlanta people who are still at Cisco. I'd argue that there's some GI culture still there, or at least enough of it that it could make things attractive to Moloney.  After all, he did return to Moto following a brief absence. Or maybe he and the Google guys didn't see eye to eye on where to take the company next, and the timing of this latest departure just worked out for both sides.


    And I'd agree that  Breen might need some convincing to try this angle, though I hear there are some cable guys who would like to see this happen. but I still think that's sort of a long shot especially if Google wants to move on this anytime soon.


    Also, the potential Ericsson connection is interesting. If that comes through, it could set up Fawaz and Bell for some solid leadership roles at ERIC, if ERIC tries to buy Moto Home and create a new, more cable-focused unit.  JB


     





     




    Jeff Baumgartner
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    Jeff Baumgartner,
    User Rank: Light Sabre
    12/5/2012 | 5:28:42 PM
    re: Who's Angling for Motorola's Cable Unit?


    Yes, Carlyle's been on a tear of late, so if they could be convinced, I think they would make an attractive candidate.  And good of you to recall the connecton between Drenel and GI.


    But if Google ends up trying to sell the unit (still an if at this point) and there are multiple parties interested in buying it, I would not put Arris on that list anymore since their track record is to get screaming deals and to bug out when faced with competitive bids (i.e. how Ericsson swooped in with a sweeter bid to snap  Tandberg Television away from Arris a few years ago). So i wouldn't completely discount them, but I think seeing Arris in the mix is less likely now than it was when we started speculating about this in March. JB


     


     

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    Duh!
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    Duh!,
    User Rank: Blogger
    12/5/2012 | 5:28:42 PM
    re: Who's Angling for Motorola's Cable Unit?


    I've been out of touch with the goings on there for a long time.&nbsp; But some parts of the story don't seem to fit with the spin-out narrative.


    Mr. Maloney never made a secret of wanting to take the Connected Home business private.&nbsp; Or so a little birdie once told me.&nbsp; A week ago, I'd have bet on a management-led LBO.&nbsp; And if it does go on the block, it would be easy to imagine Maloney trying to put a private equity deal together.&nbsp; Unless he has tried and failed to do so.


    Why would Google put the energy and money into bringing in their own A-list team&nbsp; if they didn't intend to hold on to the business?&nbsp; After, no doubt,&nbsp; paying out golden parachutes to Maloney and Roman, and giving Fawaz and Bell the kind of golden handshakes and multi-year contracts that senior execs seem to get these days.&nbsp; That looks more like doubling down than flipping.&nbsp;


    Why would Breen want to come back, especially since so much of the old boys network he relied upon has moved on since he left?&nbsp; And if he were in the mix, why would Google get rid of Maloney and Roman?


    Just a few thoughts...

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