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Arris Group Inc. (ARRS - Analyst Report) has entered into a definitive agreement to acquire BigBand Networks Inc. for a total consideration of approximately $172 million in cash. However, after adjusting $119 million of net cash in the hands of BigBand, Arris will need to pay a net $53 million to acquire the former. The acquisition will be conducted through a tender offer for all of BigBand’s outstanding shares, which is expected to begin within next 10 days and will be subject to customary closing conditions. Arris expects this deal to be completed by the end of 2011.

The proposed acquisition of BigBand is a major step by Arris to convert itself as an all IP-converged network architecture solution provider. BibgBand is a specialist in switched digital video (SDV). If the deal gets regulatory approval, Arris will become the market leader in the SDV segment. Arris will also occupy a rich patent portfolio of BigBand, which is spread across dense edge QAM technologies, targeted advertisement insertion, and systems designed to help cable operators migrate to an IP video architecture.

Further, BigBand will help Arris to diversify its clientele. Arris is heavily dependent on Comcast Corp. (CMCSA - Analyst Report) and Time Warner Cable Inc. (TWC - Analyst Report), who together accounts for nearly 40% of Arris’ total revenue. With BigBand in its kitty, Arris can now get revenue from other big cable MSOs, such as Cablevision Systems Corp. (CVC - Snapshot Report) and Cox Communications Inc. Most importantly, the two telecom giants, namely, AT&T (T - Analyst Report) and Verizon Communications Inc. (VZ - Analyst Report) are customers of BigBand. This will be a significant diversification for Arris in the telecom sector.

Arris is confident of generating significant cost synergies from this acquisition. These two entities have several overlapping products, which may allow Arris to streamline BigBand business. Management expects BigBand to be accretive to Arris’ non-GAAP earnings by mid-2012. The merged entity may become a formidable rival to other big players, such as Cisco Systems Inc. (CSCO - Analyst Report) and Motorola Mobility Holdings Inc. (MMI) in the digital video infrastructure industry.

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