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BigBand investor noise threatens to wake cable Giants

By PETER WHITE

Published: 13 October, 2011

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The Arris purchase of BigBand is a perfect example of a company taking full advantage of the state of the stock markets rights now. In time of high valuations, cash buyers have little chance of making sensible acquisitions. But in time of low valuations, investors are too quick to blame predators and management alike for taking advantage of the low prices. BigBand will only cost around $32 million net of the 126 million of cash it holds if the deal goes through.

The partnership of Arris with BigBand is taking two companies which both make their living from cable, mostly, but not solely, from US cable companies, and putting them together. BigBand has an issue being large enough to be trusted with large SDV installations, while Arris is seen by the industry as a trusted hand, but not one of the huge monoliths that have built and entrapped these cable empires. It's a smart deal but investors want to slow the deal down with legal challenges and alert Cisco and Motorola Mobility to the deal, and try to get one of them to bid the deal up.

Arris is a company that we have followed for a long time, and the US needs another credible supplier to challenge the two majors. In set tops they have Pace and Technicolor keeping them honest, in QAM, CMTS and SDV they need Arris. Arris is trying to steal a march on the other two US major suppliers by striking while they are otherwise occupied, Motorola with its fresh independence and Cisco with yet another set of internal cuts, chasing improved profitability.

In our view, the deal should be allowed to go ahead at a price that reflects current degraded share values, but at least three shareholder legal actions have been filed, which may yet be averted by a transparent shareholder meeting and vote on the deal. We would expect these legal actions to lead to an eventual rise in the acquisition price, but for Arris to remain interested unless the price change is too radical.

This item has been extracted from a longer piece in our Faultline research service. Go to www.rethinkresearch.biz/faultine to get this week's issue in full.

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