Telecom gear maker CommScope to buy Arris in $7.4 bln deal

By Liana B. Baker

(Reuters) - U.S. telecom equipment maker CommScope Holding said on Thursday it would buy set-top box maker Arris International Plc in a $7.4 billion deal to bulk up its business ahead of the global roll-out of 5G.

The offer price of $31.75 per share represents a premium of 14 percent over Arris' Wednesday close. Excluding debt, the deal is valued at about $5.69 billion, according to Reuters calculations.

CommScope shares slid more than 18 percent over concerns about the debt it would assume as part of the all cash-deal.

However, CommScope Chief Executive Officer Eddie Edwards said in an interview the company was no stranger to funding transactions with debt.

"Leverage is something that we have dealt with in our past several times with the acquisitions that we have done," Edwards said. "It's something we are used to and we know how to take cost out of the businesses as we acquire them."

Both Arris' and CommScope's businesses have been challenged as customers view some of their products as more commoditized and being easily substituted.

"In North America the video side is declining ... But it is a good cash generator so that's something that doesn't scare us. We have managed a lot of businesses for cash in our past," Edwards said.

CommScope shares have lost close to half their value since last April, prompting the company to consider potential deals as an answer to its woes.

Edwards said CommScope approached Arris several months ago about a transaction after its board carried out a study on how to grow the company.

CommScope, which was taken public by private equity firm Carlyle Group LP in 2013, sells connectivity products to the wireless industry and cable operators. Arris makes modems and set-top boxes for the same industries.

The deal comes as telecommunications companies are spending heavily to upgrade their infrastructure to handle streaming video and get ready to roll out 5G networks.

Reuters had reported about a possible deal between the two companies last month.

Separately, Carlyle will also make an $1 billion equity investment in CommScope for a stake of about 16 percent.

Allen & Co LLC, Deutsche Bank, J.P. Morgan Securities LLC, and BofA Merrill Lynch were financial advisers to CommScope. Evercore advised Arris.

The deal is expected to close in the first half of 2019.

Shares of Arris were last up 10.2 percent at $30.63 on Thursday morning.

(Reporting by Supantha Mukherjee and Akanksha Rana in Bengaluru and Liana Baker in New York; Editing by Bernard Orr and Saumyadeb Chakrabarty)