Arris Completes BigBand Acquisition

Arris Group Inc. (ARRS - Analyst Report) today announced that it has completed its proposed acquisition of 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 paid a net $53 million to acquire the former. The acquisition was conducted through a tender offer for all of BigBand’s outstanding shares. Mr. Rajive Dhar, formerly the SVP of corporate development and strategic planning of BigBand, has now joined Arris Group as VP and GM for the newly acquired business division.

We believe the acquisition of BigBand is a major step by Arris to convert itself as an all IP-converged network architecture solution provider. BigBand is a specialist in switched digital video (SDV). Arris has now acquired the required economies of scale to become the market leader in the SDV segment. The company has also occupied 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 42% 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 to reduce quarterly operating expenses of BigBand by $7 million within the third quarter of 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. () in the digital video infrastructure industry.