Motorola to Pay $11 Billion for General Instrument
Motorola Inc., seeking to expand its reach in the cable TV industry, said Wednesday that it will buy leading set-top box maker General Instrument Corp. in a stock deal valued at about $11 billion.
The deal, which had been expected for several days, would unite one of the world’s best-known telecommunications and semiconductor equipment companies with one of the nation’s top providers of cable conversion boxes.
Analysts said the combination would speed Internet access and could increase demand for electronic commerce. With Internet connections over set-top boxes, consumers may soon be able to watch a commercial, click on the advertised product and buy it instantly, the analysts said.
News of the deal sent Motorola’s shares tumbling as investors worried that the deal would hurt earnings in the near term. Analysts also blamed weakness among other semiconductor stocks for the drop in Motorola’s share price.
The stock fell $6.56 to close at $86.63 in New York Stock Exchange trading. General Instrument shares fell $3.23 to close at $47.56, also on the NYSE.
Motorola said the deal would hurt earnings modestly through 2000, but would strengthen profit after that.
“They are always under a big magnifying glass,” Bob Egan, research director for mobile and wireless at GartnerGroup, said of Motorola. “Any time they spend any money at all, there is always this emotional reaction.”
The merger would be the latest high-profile deal to shake up the cable TV industry as telecommunications, media and high-technology companies jockey for a foothold in the emerging market for broad
band technology--upgraded cable lines that can handle such services as interactive voice, data and video transmission and Internet access.
“The merger of General Instrument with Motorola integrates the key technologies needed to bring the enormous potential of converged video, voice and data networking into the home,” Motorola Chairman and Chief Executive Christopher Galvin said in a statement.
Motorola, based in Schaumburg, Ill., said each General Instrument share would be exchanged for 0.575 share of Motorola in a tax-free pooling of interests. Based on Motorola’s closing stock price Tuesday of $93.31, the deal values General Instrument at about $53.65 per share, a small premium over Tuesday’s closing price of $50.50.
The deal, which is subject to regulatory and shareholder approval, is expected to close in about 120 days.
General Instrument’s set-top boxes provide access to high-speed digital service from cable operators. The company holds 90% of the world market in digital cable boxes, which unscramble cable signals, and 60% of the older analog models.
Motorola, a pioneer in such areas as cellular phones and a leading supplier of computer chips, is the largest producer of cable modems, which link cable boxes to the Internet.
“It gives them [Motorola] a stronger position in the broadband marketplace, and gives the combined entity a better chance to play” in the emerging market for “smart” home appliances, Brown Bros. Harriman analyst Bob Wilkes said.
GartnerGroup’s Egan said the deal could change the definition of home shopping as consumers use their televisions to buy products online.
“We’re talking about making the Internet a lot more accessible and a lot more convenient for general consumers,” he said. “Consumers in the U.S. already spend a whole lot of time in front of their TVs.”
Motorola said Edward Breen, chairman and chief executive of General Instrument, will lead a new Motorola business unit focused on integrated and interactive broadband access.
Liberty Media Group, the media programming arm of AT&T; Corp., owns 21% of General Instrument and is the largest shareholder. Liberty Media has agreed to back the merger, the statement said.
