Arris International and Comcast Cable (NASDAQ: CMCSA) today announced a warrant agreement that will allow Comcast to buy up to 8 million of Arris' ordinary shares over the next two years.
The deal is essentially a supply agreement with a warrant that will vest in two tranches -- between 1 and 3 million shares in 2016 and between 1 and 5 million shares in 2017 -- based on how many products and services Comcast buys from Arris.
Included in the agreement is a requirement that a set percentage of the purchases must be for products and services included in Arris' Network and Cloud segment, Arris disclosed in an SEC filing.
The exercise price per share is $22.19, which is based on Arris' 10-day Nasdaq trading average leading up to the June 29 date of the warrant. The agreement allows Comcast to enter a net share settlement and acquire shares based on the net settlement of the $22.19 exercise price, or take a cash settlement based on the same net settlement of the exercise price.
With such a warrant attached to a supply agreement, the question becomes: Why would a large company like Arris International, the new parent company formed after Arris' $2.1 billion acquisition of Pace, be willing to essentially give up equity?
"Comcast continues to be a strong strategic partner for Arris" said Arris Chairman and CEO Bob Stanzione in a statement. "We believe the warrants demonstrate Comcast's strong commitment to Arris and its products and represent an opportunity for us to further grow our relationship."
For Arris' part of the deal, it's getting a Comcast that is incentivized to buy products and services from Arris' Network and Cloud segment, which houses CMTS, video infrastructure, access & transport, global services and cloud solutions. Arris' Network and Cloud segment is separate from its digital video and CPE business segment.
The condition that Comcast spend a certain percentage on products and services from Arris' Network and Cloud segment could be viewed as Arris using the warrant deal to boost business for its cloud services.
Of course, revenues for both Arris' CPE and Network and Cloud segments were up 33 percent for the vendor last quarter.
Arris' new agreement with Comcast comes as Arris is selling off technology. Last week, Arris sold its Whole Home Solution to Canada's Espial and sold its Media Analysis Framework to Watchwith.
For more:
- see this press release
- see this SEC filing
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