Technicolor has entered into an exclusive agreement with Cisco to acquire its customer premises equipment (CPE) business for €550 million in a cash and stock transaction. Technicolor and Cisco will also enter into a strategic partnership that will allow both companies to develop and deliver next generation video and broadband technologies, with cooperation on Internet of Things (IoT) solutions and services.
Cisco entered into the set-top box business ten years ago and connected devices have delivered $27 billion of aggregate revenue to Cisco since then, according to Hilton Romanski, SVP and chief strategy officer of Cisco, in a blog post. ‘We now believe that the time is right, and Technicolor is the right partner, to take this business to the next stage of evolution and growth.’ After the transaction has closed, Romanski will join Technicolor’s board of directors.
The two companies have also signed a long-term patent cross-licensing agreement that covers specific intellectual property and patents from both companies.
According to Technicolor, the acquisition should result in the company’s Connected Home segment reaching adjusted EBITDA in excess of €200 million by year end 2016 and best-in-class profitability (i.e. 8-9 per cent adjusted EBITDA margin) by 2017. The transaction will also translate into double-digit EPS accretion at Group level starting in the first full year after closing.
Under the terms of the agreement, upon the closing of the transaction, Cisco will receive approximately €413 million in cash and approximately €137 million in newly issued Technicolor shares, subject to certain adjustments provided for in the agreement.
Frederic Rose, CEO of Technicolor commented: “We know that video expertise is essential to the future of creating outstanding network and home infrastructure products and services. Through this acquisition and strategic agreement, Technicolor can immediately bring its unrivalled experience and innovation in video creation, delivery, and display to more customers in more geographies, while strengthening our position as a technology leader.”
“The strategic relevance of video to every consumer, business, city and country around the world is only growing, and the market is moving rapidly,” added John Chambers (pictured), chairman and CEO of Cisco. “This is the right time and we have the right company in Technicolor to drive the future of the CPE business to deliver what our customers and partners need, today and into the future. At Cisco, we are prioritising our investments to deliver on our strategy of video in the cloud, and will partner with Technicolor to position the CPE business and employees for future success.”