Arris cinches switch and wireless asset buy from Broadcom in steps to boost its network infrastructure segment


By Danielle Saba
4 December, 2017
US network equipment specialist Arris International (NASDAQ:ARRS) has completed its US$800m acquisition purchase of Ruckus Wireless and ICX Switch business from Broadcom (NASDAQ:AVGO) in steps to grow its portfolio in converged wired and wireless networking technologies.

The Committee on Foreign Investment in the United States (CFIUS) has given the go-ahead for the foreign merger transaction to be completed after a 45-day review.

Arris had announced it was acquiring Ruckus and ICX Switch in February in a move to boost its portfolio switch and wireless technologies in new vertical areas such as education, entertainment, enterprise and multi-dwelling units (MDU).

Source: Arris, Q3 Sales Performance

The deal hinged on the US chipmaker Broadcom’s (FRA:BRX) acquisition of Brocade, which was completed in late November. As a result of the combination, the semiconductor developer had planned to divest its IP switching and related services businesses.

Dan Rabinovitsj, previously COO of Ruckus Wireless, has been named president of Arris’ Enterprise Networks business. Ruckus Networks will operate as a subsidiary with a focus on the wireless and wired network infrastructure.

Rabinovitsj described the merger transaction as a win-win for Ruckus Wireless and ICX switching, as it will be able to leverage Arris’s resources and scale to grow its networking portfolio on a global scale.

The executive management team for Arris will host a conference call on 14 December to provide an update on Ruckus deal.

Arris relied on Liontree as its financial adviser, and Troutman Sanders as legal counsel.

Fiscal performance relatively flat

The set-box provider recently reported third quarter earnings, with adjusted revenues slightly slipping to US$1.72bn compared to US$1.73bn for the year-ago period. Year to date, adjusted revenues narrowed to US$4.8bn, compared to US$5bn year to date. But net income slightly increased to US$0.80 per diluted share for the third quarter, compared to US$0.77 per diluted share for the same quarter in 2016.

The company’s cash position increased to US$1.4bn while it also refinanced its US$2.1bn in debt in mid-October. Refinancing its US$500m credit revolver (undrawn) and US$1.6B term loans resulted in a change in the maturities to October 2022 from June 2020. It also increased its leverage ratio to 4x from 3.5x with a step down to 3.75x in March 2019 in a move to add flexibility for future potential borrowing needs, according to the company.

As operators continue to invest in broadband capacity and connectivity, Arris hopes the Ruckus deal well help the company capitalize on the growth.

Despite Arris CEO Bruce McClelland pointing out the fiscal fourth quarter is often the most difficult to forecast, he is projecting sales to be between US$1.6bn to US$1.7bn. It also expects GAAP net income per diluted share of US$0.31 to US$0.37, and adjusted net income per diluted share of $0.74 to $0.80, excluding the pending wired and wireless acquisition.