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Who's Saying Hello to Moto?

Jeff Baumgartner
12/21/2009

Arris Group Inc. (Nasdaq: ARRS) and a handful of private equity firms have shown interest in buying Motorola Inc. (NYSE: MOT)'s profitable set-top and wireless networking division, according to a Reuters report.

The report stated that Bain Capital , The Blackstone Group , Kohlberg Kravis Roberts & Co. (KKR) , Silver Lake Partners , and TPG Capital all put in early bids before last Wednesday's deadline for "first round expressions of interest" but warned that none of the preliminary activity is binding.

The report also listed Arris as a possible buyer, but noted that it's likelier the vendor would hook up with an equity partner rather than pursue the Motorola unit all on its own.

The bid activity comes after a report last month by The Wall Street Journal (still unconfirmed by Motorola) that Moto wants to shed its Home Networks and Mobility division for about $4.5 billion. That Moto unit posted revenues of $2 billion and operating income of $199 million in the third quarter. (See Moto May Be Mulling Set-Top Sale.)

Missing from Friday's purported list of potential suitors are companies that were viewed as early front-runners with both the motivation and the means to land the Moto unit -- Huawei Technologies Co. Ltd. , Microsoft Corp. (Nasdaq: MSFT), Ericsson AB (Nasdaq: ERIC), and Nokia Networks . (See Huawei Seen as Likely Moto Suitor.)

Arris declined to comment on the report, but the company's apparent interest in the set-top division of Motorola doesn't come as a huge surprise, based on its recent ambitions. The Suwanee, Ga.-based cable gear supplier recently entered the cable set-top game with a $20 million purchase of Digeo Inc. Although Arris will continue to support Digeo's small retail set-top business, the more lucrative play will likely involve direct sales to MSOs and the development of a fancy "gateway" device capable of delivering traditional QAM and IP video services to multiple screens hanging off the home network. (See Digeo Gives Arris Multimedia Gateway Potential and Arris Digs Digeo .)

But buying Digeo, which had but $3.2 million in revenues in 2009 through June, merely gets Arris into the game. (See What Digeo Was Making .) An acquisition of Motorola's set-top unit would automatically put it at the head of the set-top food chain in North America, making it a bigger competitive nuisance to Cisco Systems Inc. (Nasdaq: CSCO) and an even closer ally of Comcast Corp. (Nasdaq: CMCSA, CMCSK), already Arris's largest customer. Such a deal would also give Arris the keys to Moto's set-top crown jewels -– its Mediacipher conditional access and encryption technology.

Although Arris makes a logical fit for Moto's Home and Networks unit, the company will likely need some help pulling together the cash necessary to hit the expected asking price. Arris ended the third quarter with $562 million in cash and short-term investments.

According to the report, Moto did not allow potential suitors to make joint offers in the first round.

Arris, however, has been known to drive bargains and back away from bidding wars, as it did when Ericsson swooped in to steal away Tandberg Television for $1.4 billion. (See Ericsson Offers $1.4B for Tandberg TV and Tandberg Television Signing Off .)

But the report dampens speculation that Arris intends to take an M&A breather as it absorbs recent acquisitions of Digeo and video encoding specialist EGT Inc., and soon after one of its dealmakers, Rajive Dhar, left to join digital video specialist BigBand Networks Inc. (Nasdaq: BBND). (See BigBand Acquires Arris's M&A Guy .)

— Jeff Baumgartner, Site Editor, Cable Digital News

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