CommScope has finally found someone to take its struggling Home Networks unit off its books.

Vantiva announced Tuesday that it has struck a deal to acquire CommScope's Home Networks division, a unit that makes set-tops, streaming media players and broadband gateways, in exchange for a 25% stake in Vantiva.

Vantiva, the company formerly known as Technicolor following a spin-off executed last year, said the deal "represents a transformation transaction" as it looks to combine two entities that generated a combined $3.59 billion in sales ($1.5 billion for CommScope Home Networks and $2.09 billion for Vantiva's Connected Home) over the past 12 months ending June 2023.

Vantiva said it expects the deal, referred to as a "call option agreement," to close sometime in the fourth quarter of 2023. Vantiva has secured board approval, but noted that the agreement is subject to Vantiva's exercise of the call option following information and consultation processes with relevant employee representative bodies. That process will be "initiated as soon as possible," Vantiva said.

The companies did not announce how many CommScope employees would transition to Vantiva. But as a "key reference shareholder" in Vantiva, CommScope will have one representative join the Vantiva board.

The agreement with Vantiva surfaces more than two years after CommScope initially planned to spin off Home Networks into a separate, publicly traded company to be led by unit SVP (and former Scientific-Atlanta and Cisco exec) Joe Chow. CommScope, which had also expressed interest in pursuing a possible sale of Home Networks, later delayed the plan and regrouped as the customer premises equipment (CPE) division was hard hit by supply chain constraints and negative impacts from foreign exchange rates.

Seeking scale, operational efficiencies

Vantiva, whose stock was up nearly 20% Tuesday in the wake of the announcement, believes the transaction will generate scale and improve operational efficiencies – the company said it expects the deal to generate more than 100 million euros (US$104.78 million) in pre-tax cash synergies on a run-rate basis by fiscal year 2026. The company also believes the transaction will bring in new customers and broaden the company's global footprint. Vantiva further believes the deal will help it continue to diversify a strategy that includes products and services focused on the Internet of Things (IoT) and business-to-business connectivity.

"From a financial perspective, the acquisition of Home Networks will substantially increase the scale of our business while also generating synergies, that will significantly strengthen our free cash flow generation potential," Vantiva CEO Luis Martinez-Amago said in a statement. "It will enable us to reinforce Vantiva's Connected Home operations, accelerate our innovation roadmap and expand into new markets through additional commercial partnerships."

Vantiva/Technicolor acquired Cisco's set-top business in 2015

This isn't the first time Vantiva has taken an unwanted CPE asset off another company's hands. In 2015, Vantiva (still known as Technicolor at the time) acquired Cisco Systems' CPE business for $604 million in cash in stock. At the time, the takeover roughly doubled annual revenues at Vantiva's Connected Home business.

The CommScope deal is poised to shore up Vantiva's position in the DOCSIS CPE market as new DOCSIS 4.0-based products loom on the horizon. Vantiva led the DOCSIS CPE market with a 38% share of revenue for full-year 2022, followed by CommScope (27%) and Sagemcom (9%), according to Dell'Oro Group. A group of others that includes Hitron, Ubee, Sercomm, Askey and Arcadyan represented about 22% of DOCSIS CPE revenues in 2022, according to the research firm.

But the deal also represents a combination of CPE businesses that are shrinking.

CommScope's Home Networks unit, for example, generated Q2 2023 revenues of $330 million, down 22% year-over-year. In Q1 2021, when CommScope first considered spinning out Home Networks, the unit brought in $489.2 million.

The story is similar at Vantiva. The company's Connected Home unit generated €807 million ($845.69 million) in the first half of 2023 (CPE revenues were roughly 80% for broadband devices and 20% for video set-tops and streamers), down from €897 million ($940.01 million) in the prior year period.

Vantiva attributed the decline to weaker demand in the Americas due in large part to the drawing down of high customer inventory and a drop in video device sales (primarily for satellite receivers in Latin America). But Vantiva also reported improvements in the availability of chipset supply (though prices remain high) and said it had notched its first wins for DOCSIS 4.0-based CPE.

More moves to come?

CommScope's proposed sale of Home Networks could be the first of multiple divestments. Industry sources confirmed that CommScope is also exploring the potential sale of other assets, including Ruckus Wireless and CommScope's Access Networks Solutions (ANS) division.

"When we rolled out our CommScope NEXT plan in 2021, we identified portfolio management as a key pillar of the program. Portfolio management is an ongoing process, and we have identified several opportunities to optimize our portfolio," CommScope said in a statement, but added that it's not yet ready to elaborate on its specific plans.

Source：LightReading.com