Harmonic agrees to buy C-Cube for $1.7 bln in stock
By Duncan Martell
PALO ALTO, Calif. (Reuters) - Harmonic Inc. Tuesday agreed to buy the Divicom business of C-Cube Microsystems Inc. for about $1.47 billion in stock, saying it would make Harmonic stronger in delivering video, voice and data over high-speed networks.
Based upon Harmonic's closing price of $59.875 Tuesday, the value of the transaction would be about $1.47 billion. C-Cube shareholders will receive 0.5427 shares of Harmonic stock for each share of C-Cube, valuing each C-cube share at $32.49, 20 percent less than C-Cube's closing price of 40 3/8 on Tuesday. [Is this the deal???? I don't think so.]
Harmonic, which makes digital and fiber optic systems that enable cable TV and other network operators to provide interactive services such as high-speed Internet access and video-on-demand, also said that C-Cube's semiconductor business would be spun off to shareholders, or, if a suitable bidder comes forward, sold.
But C-Cube spokesman Alan Markow told Reuters that the company fully expects the chip business, which accounted for about half of C-Cube's revenue of $169.5 million for the nine months ended Sept. 30, to be spun off to shareholders.
'GOOD DEAL'
One Analyst said the transaction appeared to be a good deal for C-Cube shareholders. One of C-Cube's most promising products is a single chip costing less than $100 that can compress digital video about 100 times and then decompress it, all on a single semiconductor.
''This is very difficult to do and it takes pretty cool technology to do it,'' said analyst Dan Scovel at Fahnestock & Co. ''Basically, C-Cube is selling off half the business for nearly the company's entire market capitalization.''
C-Cube, Sunnyvale, Calif., has a current stock market value of about $2 billion, and its shares have doubled since April. The stock closed at 40 3/8 on the Nasdaq, up 1 3/16.
Divicom makes software and equipment for digital television, including audio/video encoding, network management systems, consulting and integration services. Scovell added that the combination of Harmonic and Divicom also bodes well for sales of C-Cube chips because Harmonic and Divicom will reach a larger portion of the broadcast industry.
C-Cube's chips are used in set-top boxes, DVD, or digital versatile disk, players and in digital video compression.
DIGITAL EXPERTISE
Harmonic said that, because of Divicom's expertise in digital video compression using a technology called MPEG-2, it would have stronger offerings in running digital video over cable, satellite, telecommunications and wireless networks.
''Divicom's strengths in digital video compression and our strengths in cutting-edge fiber optics is a logical and exciting combination,'' Harmonic Chairman Anthony Ley said in a statement.
Sunnyvale, Calif.-based Harmonic said that eventually this would give it increased opportunities in sending compressed video over networks using Internet Protocol, or IP, the lingua franca of the Internet. Harmonic makes digital and fiberoptic systems that send data over different types of networks.
''This combination will allow two premier broadband equipment providers to pool resources to further advance the promise of video, voice and data over cable, telco, satellite and wireless networks,'' Ley said.
Divicom, based in Milpitas, Calif., has about 425 employees and had sales of $133.8 million and operating income of $20.5 million for the nine months ended Sept. 30, 1999.
''We see this as an ideal union,'' Divicom President Tom Lookabaugh said in a statement.
Divicom's worldwide customer base includes companies such as BellSouth Corp.(BLS.N), Cablevision Systems Corp.(CVC.A, Hughes Electronics Corp.'s (GMH.N) DirecTV, EchoStar Communications (DISH.O), GTE (GTE.N) and MediaOne (UMG.N) .
Harmonic said the deal will be accounted for as a purchase and it will amortize the resulting goodwill over a period of about five years. It expects the deal to add to earnings in the first year, and the transaction should close in March 2000.
Harmonic stock, which has soared more than 1,000 percent in the last 12 months, fell 5 to 59 7/8 on the Nasdaq, after dropping four yesterday.
19:39 10-27-99
Copyright 1999 Reuters Limited. |
