Technicolor to acquire Cisco set-top business for €550 million

Cisco is to sell its set-top business to Technicolor for €550 million in cash and stock.

On closing, Cisco will receive approximately €413 million in cash and approximately €137 million in newly issued Technicolor shares, subject to certain adjustments.

The acquisition will give Technicolor an estimated 15% share of the global CPE market, with 60 million devices shipped each year and a n installed base of 290 million set-tops and 185 million gateway devices across 100 countries.

Technicolor and Cisco have also entered into a strategic partnership to develop video and broadband technologies, including cooperating on Internet of Things solutions and services. The pair have have signed a long-term patent cross-licensing agreement that covers specific intellectual property and patents from both companies.

As part of the strategic agreement and after the transaction has closed, Hilton Romanski, senior vice-president and chief strategy officer of Cisco, will join Technicolor’s Board of Directors.

The combined entities accumulated €3 billion in proforma revenues last year, double Technicolor’s total.

The sale of the CPE division brings to an end Cisco’s 10-year involvement in the set-top business following its acquisition of Scientific Atlanta. Service provider video revenues dipped significantly in Cisco’s third fiscal quarter to March, with orders down 20% and revenues down 5%. At the time, outgoing CEO John Chambers described cloud-based video as “strategic”, which he contrasted with Cisco’s “tactical” involvement in the set-top business.

In a blog posting, Romanski said that he was “proud of the contribution this business and its people have made to Cisco over many years” and noted that the connected devices business had delivered US$27 billion in aggregate revenue over the 10-year period that Cisco owned the business. He said that “Cisco will continue to refocus our investments in service provider video towards cloud and software-based services businesses” and noted that the devices business will end fiscal 2015 with revenues of approximately US$1.6 billion.

Hilton Romanski

“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,” said Romanski.

“The strategic partnership agreement with Technicolor will also ensure Cisco remains close to this business and our service provider customers. The proposed transaction will allow both companies to accelerate our investments in our respective strategic priorities, while working together to deliver value to the market.”

According to Technicolor, the deal will result in its connected home division reaching adjusted EBITDA of over €200 million next year with an 8-9% EBITDA margin by 2017. The company estimates that the combination will generate synergies of €100 per annum.

The agreement is expected to close at the end of Cisco’s second quarter for the 2016 fiscal year.

“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,” said Frederic Rose, CEO of Technicolor.

“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.

“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.”