Arris Mulls Next Move
LR Cable News Analysis Alan Breznick, Cable/Video Practice Leader, Light Reading 2/26/2007
Just six weeks after apparently snatching Tandberg TV from the clutches of Motorola Inc. (NYSE: MOT), Arris found itself the victim of a snatching by Ericsson today. (See Ericsson Offers $1.4B for Tandberg TV.)
Arris officials declined comment on Ericsson's hostile bid, which trumped Arris's $1.2 billion cash-and-stock tender offer for the video encoding specialist. (See Arris Pounces on Tandberg TV.) An Arris spokesman says the company is reviewing the situation and has not yet decided how to proceed.
"We're evaluating the offer," he says. "We haven't received their offering documents."
The spokesman stresses that Arris's tender offer remains open to Tandberg TV shareholders. He also noted that Tandberg TV's management and board have already accepted the Arris offer and have recommended that shareholders approve it. (See Tandberg TV Reports Q4.)
But three Wall Street analysts who cover Arris closely think the company has lost the Tandberg TV contest and will have to abandon its dreams of joining the ranks of Motorola and Cisco Systems Inc. (Nasdaq: CSCO) In research reports issued today, all three termed it unlikely that Arris will try to match or outbid the much larger Ericsson, which has already sewn up nearly 25 percent of Tandberg TV's shares.
"While we believe Arris could raise their offer from a financial perspective, we do not think a new bid is likely," writes Alan Bezoza, a senior research analyst for Oppenheimer & Co. "Given Ericsson's owned and commitment shares and solid balance sheet, we do not think Arris will be able to wrestle away Tandberg TV from Ericsson's grips."
Instead, the analysts believe that Arris will pocket its breakup fee from Tandberg TV and quickly move on. Two of them -- Bezoza and Anton Wahlman of ThinkEquity LLC -- predict that Arris will shift its attention to such other, probably smaller, takeover targets as Terayon Communication Systems Inc. , Harmonic Inc. (Nasdaq: HLIT), and C-COR Corp. (Nasdaq: CCBL) Arris reportedly dropped its earlier interest in such smaller takeover candidates as Terayon and Concurrent Computer Corp. (Nasdaq: CCUR) once Tandberg TV came into play.
The third analyst, Brian Coyne of Friedman, Billings, Ramsey & Co., thinks Arris will simply "sit tight" for the next year or two. He predicts Arris will focus on its data and VOIP business as major customers including Comcast Corp. (Nasdaq: CMCSA, CMCSK), Time Warner Cable Inc. (NYSE: TWC), Charter Communications Inc. , Cox Communications Inc. , and Liberty Global Inc. (Nasdaq: LBTY) step up their broadband equipment orders.
"Skeptics may worry that Arris's sky is falling without a video play," Coyne writes. "But we think those 'Chicken Littles' risk ignoring the strong trends in the company's core business."
Further, Coyne and Bezoza, think Arris will now become a takeover candidate itself for a larger telecom equipment player. They cite such potential acquirers as Nortel Networks Ltd. , Alcatel-Lucent (NYSE: ALU), and Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA)
Arris stock fell $1.38 (9%) to $13.91 today.
— Alan Breznick, Site Editor, Cable Digital News