Following in Comcast's footsteps, Charter has now entered into a "Warrant and Registration Rights Agreement" with network equipment and customer premises equipment (CPE) supplier Arris.
According to the deal, Charter Communications Inc. has the right to purchase up to 6 million shares of Arris Group Inc. (Nasdaq: ARRS) stock between now and the end of 2018. Through 2016 and 2017, the fixed stock price for Arris is set at $28.54 per share. In 2018, the per-share price will be determined using a formula based on trading performance at the time. Arris stock ended the trading day yesterday at $27.77, but rose past $29 per share in early-hours trading today.
As in the earlier warrant agreement with Comcast Corp. (Nasdaq: CMCSA, CMCSK), Arris will only make certain shares available to Charter once Charter passes specific volume thresholds in the purchase of Arris products and services. Of those purchases, a set percentage must come from the Network & Cloud segment of the Arris business. The entire agreement expires on September 30, 2023.
The trend toward cable companies signing warrant agreements with major industry vendors is an interesting one. It suggests both that cable operators want vendor interests more closely aligned with their own, and that cable companies may feel some of their vendors need additional support at a time when the industry as a whole is poised for major network and service transformation. (See Why Cable Is Upgrading Networks Now.)
Within the last six months, Comcast has signed three major warrant agreements, including deals with Arris, Universal Electronics Inc. and Harmonic Inc. (Nasdaq: HLIT). (See Harmonic's New Comcast Deal Oozes Subtext and What Does Comcast Want From Arris?)
Charter, meanwhile, already had close ties with Arris prior to the latest investment deal. The two companies formed a joint venture in 2015 to acquire set-top virtualization company ActiveVideo . The buyout price for ActiveVideo was approximately $135 million. Arris owns roughly 65% through the JV, while Charter owns the other 35%. (See Arris, Charter Nab ActiveVideo for $135M.)
— Mari Silbey, Senior Editor, Cable/Video, Light Reading