Cisco (NASDAQ: CSCO) has agreed to sell its customer premises equipment (CPE) business for cash and stock totaling €550 million (USD $600 million equivalent) to French firm Technicolor (Euronext Paris: TCH; OTCQX: TCLRY). The companies have also agreed to collaborate on video and broadband technology and services.
According to a blog written by Cisco senior vice president and chief strategy Officer Hilton Romanski, the sale will help enable the company to focus its investments within service provider video toward cloud and software-based service activities. Romanski will join Technicolor's board of directors upon completion of the sale, which Technicolor expects to happen either very late this year or during the first quarter of 2016.
The transaction terms call for Cisco to receive approximately €413 million (USD $450 million) in cash and approximately €137 million (USD $150 million) in newly issued Technicolor shares, subject to certain adjustments. The cash portion will come from funds on hand as well as fully underwritten new debt.
Technicolor expects its new assets will enable its Connected Home segment to achieve adjusted EBITDA in excess of €200 million by year-end 2016 and 8% to 9% adjusted EBITDA margin by 2017. The deal also will lead to double-digit accretion to earnings per share at the group level beginning in the first full year after closing, the company predicts.
"The strategic relevance of video to every consumer, business, city and country around the world is only growing, and the market is moving rapidly," said John Chambers, chairman and CEO of Cisco.
Chambers added, "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 prioritizing 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."
The collaboration agreement includes a long-term patent cross-licensing agreement that covers certain intellectual property and patents from both companies.