Motorola to buy Terayon for $140M

By Colleen Taylor, Contributing Editor -- Electronic News, 4/23/2007

Motorola Inc. today said it has inked a definitive merger agreement to acquire all the outstanding common stock of video processing solutions provider Terayon Communication Systems Inc. at a total equity value of approximately $140 million or $1.80 per share.

The move by Terayon was an expected one, with reported suitors including Motorola and Cisco Systems, but in the end it may not be a welcomed deal by the company’s shareholders. Terayon's share price jumped some 28 percent on Friday, April 20, closing at $1.84 as rumors of the Motorola deal swirled. However, the share price opened nearly 5 percent lower this morning as details of the acquisition were confirmed and continued to fall throughout the morning as news spread.

Indeed, long-time shareholder disappointment with Motorola's offer to pay $1.80 per share is can be expected, given the company's history. Founded in 1993, Terayon achieved huge success with its initial public offering in 1998 during the height of Wall Street's high-tech boom. The company's stock reached a high of $285.25 per share in March 2000.

Terayon has been saddled with problems for years now, including having its accounting practices probed by federal regulators and a bevy of shareholder lawsuits, according to a MarketWatch report. Its sales have also suffered. The company had revenues of $76.6 million in 2006, down from $90.7 million in 2005 and $150.5 million in 2005.

For its part, Motorola has had its share of recent troubles, as well. The company reported weak Q1 financial results last week, with sales of $9.43 billion, down 5.7 percent year-over-year from Q1 2006 sales of $10.01 billion and down 20.3 percent from Q4 2006 sales of $11.8 billion. The company also posted a Q1 operating loss of $366 million.

Upon completion of the transaction, Terayon, which creates video processing solutions that optimize bandwidth and allow content to be delivered based upon the regional and local interest of viewers, will become a wholly owned subsidiary of Motorola and will be integrated into the Motorola connected home solutions business. Motorola said the focus of the integration will be on features like digital ad insertion, motion and graphical overlays, channel branding and channel line-up solutions.

Motorola, which is based in Schaumburg, Ill., said it intends to maintain Terayon's operations in Santa Clara, Calif.

"The acquisition of Terayon will enhance Motorola's end-to-end portfolio for the delivery of next-generation services such as targeted advertising and program insertion solutions," Dan Moloney, president of Motorola connected home solutions, said in a statement.

The transaction is subject to customary closing conditions, including regulatory approvals and the approval of Terayon's stockholders, and is expected to be completed in by the end of Q3.