Posts Tagged ‘Michael Lewis’

Harris Corporation to Sell Broadcast Business to The Gores Group for $225 Million

Broadcast Vendor M&A | Posted by Joe Zaller
Dec 06 2012

Harris Corporation said today that it has signed an agreement to sell its Broadcast Communications Division (Harris BCD) to The Gores Group (TGG), a Los Angeles-based private equity firm, for $225m.

Under the terms of the deal, The Gores Group will pay $160m in cash a $15m subordinated promissory note and an earnout of up to $50m based on future performance. The deal is expected to close in early calendar year 2013.

The deal price is  below the $287m valuation that Harris Corp recently said it had on its books for BCD following three successive write-downs of BCD.

“The sale of Broadcast Communications reflects our strategy to optimize our business portfolio and focus on our core businesses,” said Harris Corporation CEO William Brown.

The upfront cash portion of the deal is below the amount that Brown had previously telegraphed to the market.  When the sale of BCD was announced in May 2012, Brown said that he expected to receive “substantially more” than $200m for BCD, and that the company would the first $200m from the sale of BCD to shareholders, and use the residual to invest in the company’s core defense business.

Brown addressed this in a statement, saying “As previously communicated, we plan to repurchase up to $200 million of our shares after the deal closes. This is in addition to the $200 million of share repurchases already planned for fiscal 2013 and reflects our ongoing commitment to effectively deploy capital, including returning cash to shareholders.”

According to its website, The Gores Group has $3.3 billion in assets under management and “specializes in acquiring businesses that are undergoing change in capital structure, strategy, operations or growth and can benefit from Gores’ operational and strategic approach.” TGG says it “targets companies with a defensible core business, mature products or services, sustainable revenues, established customer relationships, and that have reached a transition point in their lifecycle presenting an opportunity for transformation.”

“In Harris Broadcast Communications, we are investing in a proven technology leader with great products and a great team. We are excited to provide the capital and support to transition this division to a strong and independent company further enabling it to continue developing and delivering market leading technologies to its customers,” said Ryan Wald, Managing Director of The Gores Group.

The announcement did not disclose whether current management would remain in place, or for how long Harris BCD will continue to have the right to use the Harris name.  However Wald’s statement that TGG is investing in a great team implies current Harris BCD president Harris Morris is likely to remain at the helm of the company.

The announcement comes after months of intense rumor and speculation, which began in May 2012 when Harris Corporation announced its intention to divest its broadcast business, saying BCD was no longer considered a core asset to the defense contractor’s overall business.

At that time, Harris Corporation CEO William Brown summed up the company’s reasons for wanting to sell-off BCD: “The combination of a lack of effective integration by the company over the last decade, coupled with a market outlook that is not as promising today as once believed led us to believe that the business is best owned by another party.

The structure of Harris BCD today is the result of a decade-long M&A program, which transformed the company from a leading provider of radio and television transmitters into one of the largest pure-play broadcast technology vendors. According to a TVNewsCheck article, Harris spent close to $1 Billion on M&A since 2000, including the acquisitions of Louth, Encoda, and Leitch.

A May 2012 analysis of the sale of the Harris broadcast business showed that the company has approximately 1,700 employees and had revenue of approximately $375m through the third quarter of FY 2012, essentially flat with the previous year.  It is believed that Harris BCD had revenue of approximately $500m for the full FY 2012, which ended on June 30, 2012, down about 10% versus the previous year.


Deal Valuation Below Book Value

The $225m valuation of BCD is below Harris Corp’s internal valuation of BCD, which the company said during its most recent earnings announcement that it had lowered to approximately $287m based on “recent indicators of value during the first quarter of fiscal 2013, including market, financial performance and indications of value from interested parties.”

At that time, Brown said this lowered internal valuation gives an “indication of the value we expect to receive” from the sale of Harris BCD.

The recent write-down of BCD is the third time in the last six months that Harris has taken a non-cash impairment charge against the value of BCD.

In May 2012 when Harris Corp announced its intention to divest BCD, the company said it “recorded in the third quarter a non-cash charge of $407m after-tax, or $3.62 per diluted share, to write down a significant portion of the goodwill and other long-lived assets in Broadcast Communications, resulting in the GAAP loss from continuing operations.”  Information about how Harris Corp calculated this write-down was published in the company’s Q3 FY 2012 10-Q filing.

Harris subsequently disclosed a second BCD impairment charge of $23.6m in August 2012 as part of the company’s annual 10-K filing with the SEC, which said:

 “Due to the length of time necessary to measure the impairment of goodwill and other long-lived assets, our impairment analysis [of BCD] was not complete as of the end of the third quarter of fiscal 2012. In the fourth quarter of fiscal 2012, we completed our impairment analysis and, as a result, recorded a $23.6 million ($10.5 million after-tax) increase to our initial estimated impairment charge. The portion of the total $447.6 million impairment charge related to goodwill was $395.6 million, a minor amount of which was deductible for tax purposes.”


Potential Implications of the Deal for the Broadcast Industry

The fact that Harris BCD was acquired by a private equity firm with no previous experience in the broadcast technology space has interesting implications for both Harris BCD and the broadcast technology landscape as a whole.

Since Harris Corp announced its intention to sell the broadcast unit, many names have been bandied about as potential buyers of BCD — ranging from established industry players such as Grass Valley (via their PE owner Francisco Partners), to large “strategic buyers” with some existing activities in the broadcast industry (similar to Belden’s purchase of Miranda Technologies earlier this year), to private equity players.

Now that the buyer has been announced, the next question is whether The Gores Group will use BCD as a platform for further expansion into the broadcast industry (as Belden said it would do with Miranda), or break BCD up and sell it off.

Time will tell.


What’s Next For Harris Corp?

Having found a buyer for BCD, Harris Corporation can now concentrate on its core defense business.  This was one of the primary factors cited by Brown when he announced the plan to sell BCD in May 2012, saying to equity analysts: “given the tough environment that we are facing it’s important for us to focus our resources including our management time and attention on the businesses that we know to be core to our company so we can be successful into FY 2013 and beyond.”

However, things are getting tougher in the defense business due in large part to hundreds of millions of dollars in mandatory budget that are scheduled to take effect in early 2013. This has put pressure on Harris Corp.  According to a recent Associated Press article Lazard Capital Markets analyst Michael Lewis downgraded his rating on the company’s stock, citing worries about weaker revenue due to reduced government spending.

This may make Harris Corp a potential takeover target.  Indeed, according to a recent Reuters article, the collapse of the proposed $45 Billion merger of defense giants BAE and EADS “will shift the focus to smaller deals among global weapons makers as companies strive to keep revenue rising in the face of cuts in military spending by the United States and Europe.  Instead, major defense companies likely will focus on possible combinations with smaller players such as Rockwell Collins, L-3 Communications Holdings Inc, SAIC Inc, ITT Exelis and Harris Corp, according to interviews with more than a dozen industry executives and bankers.”

Given the environment, one has to wonder whether the divestiture of BCD is a precursor of an eventual sale of Harris Corporation itself to a larger defense contractor. After all, both the company and its CEO may now be well-positioned for the next deal.

With the pending disposal of BCD now announced, Harris Corp is now a pure-play “mid-tier” defense contractor, and therefore more attractive as a potential partner to another defense firm; and Brown himself is well-suited for this environment.  He joined Harris from United Technologies (UTC), where he orchestrated a $16.5 billion deal to buy Goodrich Corp., which closed after he joined Harris as CEO.  Previously, as the head of UTC’s Fire & Security division, he executed more than 40 M&A deals, creating a $6.5 Billion operation in the process.






Related Content:


Press Release: Harris Corporation to Sell Broadcast Communications to The Gores Group for $225 Million

Harris Corp Announces Q1 FY 2013 Results, Further Writes Down Value of Broadcast Business

Harris Corporation To Divest Broadcast Business

Analyzing the Sale of the Harris Broadcast Division

Guest Post: Investment Banker Perspective on Sale of Harris Broadcast

Statement From Harris Broadcast CEO on Divestiture of Harris Broadcast Communications Division

Harris Q3 FY 2012 10-Q Filing – details write-down of broadcast division

Harris 8-K Filing – Restates Fiscal 2011-12 Revenue on Pro Forma Basis (Without Broadcast and Cyber Integrated Solutions)

TVNewsCheck Article: Tech’s Big Question: What’s Next For Harris?

Quincy Herald-Whig ArticleProspective buyers seek information on Harris broadcast; business as usual in Quincy


© Devoncroft Partners. All Rights Reserved.


Harris Corporation To Divest Broadcast Business

Broadcast technology vendor financials | Posted by Joe Zaller
May 01 2012

After much rumor and industry speculation, Harris Corporation announced today that it will sell the company’s broadcast communications division.

The announcement was made in conjunction with the release of the company’s results for the first quarter of 2012, and just a few months after the company said it would shut down its cyber integrated solutions business.  Both Harris broadcast and Harris cyber integrated solutions were part the company’s Integrated Network Solutions (INS) unit, which was created last year when Harris strategically realigned its business segments

“The decision to divest Broadcast Communications resulted from a thorough review of our business portfolio, which determined that the business is no longer aligned with the company’s long-term strategy,” said new Harris Corp CEO William Brown. “The plan to sell these assets supports our disciplined approach to capital allocation, and we intend to use the proceeds to return cash to shareholders and invest in growing our core businesses.”

“The combination of a lack of effective integration by the company over the last decade, coupled with a market outlook that is not as promising today as once believed led us to believe that the business is best owned by another party.

“Although broadcast is no longer core to our company, we believe the business has the potential for strong growth and margin expansion, is led by a solid leadership team, and has long term value for someone who brings a focused approach to the broadcast and media market.”

The company telegraphed its intentions last quarter when said that despite improving performance in the broadcast division there was still work to do.  “In Broadcast, we bought several companies over the years which were never fully integrated. While we continue to see good traction on the top line, our cost structure, driven by complexity, lack of productivity and growth investments, isn’t where we need it to be and it’s preventing us from achieving acceptable returns. Our team is now laser-focused on developing a strategy for this business that maximizes shareholder value.”

In connection with the process of evaluating strategic alternatives for Broadcast Communications, the company recorded in the third quarter a non-cash charge of $407m after-tax, or $3.62 per diluted share, to write down a significant portion of the goodwill and other long-lived assets in Broadcast Communications, resulting in the GAAP loss from continuing operations. Following the close of the quarter, the company approved a plan to divest Broadcast Communications. As a result, current and prior period financial results for Broadcast Communications will be reported as discontinued operations beginning with the fourth quarter of fiscal 2012.

Brown said that Harris had only recently kicked off the sale process for its broadcast business, but that he expects a transaction to take place by the end of 2012. 

The company says it will use approximately $200m from the sale of the broadcast division to buy back its own stock. However, Brown made it clear that Harris “fully expects that the proceeds [from the sale of the broadcast business] will be substantially higher than $200m”, although he declined to speculate on a valuation or even a value range.

In response to a question from Barclays analyst Carter Copeland about the timing of the sale of the company’s broadcast business, Brown said that the divestment of the broadcast business was “Not a new topic with our board, it has been discussed quite frequently over the last several years given where broadcast happens to be… it’s been an active discussion with our board on is it a fit, how do we make it better, what is the timing if we decide to exit… we had a long conversation about it… in our view, given the tough environment that we are facing it’s important for us to focus our resources including our management time and attention on the businesses that we know to be core to our company so we can be successful into FY 2013 and beyond.”

Other analysts appeared pleased with the announcement.  For example, Lazzard Capital Markets analyst Michael Lewis, said on the conference call “I have to applaud you on this broadcast divestiture, it just never made sense to me.”


Performance of Harris Broadcast

Because Harris broadcast is now part of the company’s INS division, it had been difficult to know its precise financial performance.  The last time full financials for Harris broadcast were available was at the end of the company’s 2011 fiscal year (released in August 2011), when the Harris broadcast communications division had revenue of $553.8m, an increase of 14% versus its performance in fiscal 2010.  At that time, then Harris CEO Howard Lance, the broadcast division in fiscal 2011 had shown “excellent growth” and has “vastly improved” over last year.  It was “profitable both for the quarter and for the fiscal year in total.”

Today the company disclosed that its revenue for the third quarter of fiscal 2011 was $111m, a decline of 14% versus the same period a year ago.  Harris CFO Gary McArthur said that the company’s broadcast business experienced weaker demand in North America and longer international sales lead time, which led to a decline in revenue and “resulted in a non-GAAP operating loss of $4m compared to operating income in the prior year of $2m.”

By looking at the company’s revised financial guidance, it is possible to estimate the revenues of the broadcast business.  Harris had previously said that its total revenue for the full fiscal year 2012 would be ~$6 Billion.  Today it said that it expects to see revenue of $5.42 Billion, excluding the broadcast and cyber solutions businesses. This implies that the combined broadcast and cyber businesses are expected to have combined revenues of approximately $555m for the full fiscal year 2012. However the size of the cyber business has not been disclosed.


Related Content:

Press Release: Harris Corporation Reports Fiscal 2012 Third Quarter Results

Harris 8-K Filing – Restates Fiscal 2011-12 Revenue on Pro Forma Basis (Without Broadcast and Cyber Integrated Solutions)

Harris Fiscal Q3 2012 Analyst Presentation

Harris Fiscal Q3 2012 Conference Call Transcript

Harris Broadcast Revenue and Income Rise in Q2 2012, Says It’s Laser Focused on Maximizing Shareholder Value.

Harris Corporation Shuts Down Cyber Integrated Solutions Business

Harris Corporation Strategically Realigns Business Segments; Broadcast Communications Rolled into New “Integrated Network Solutions” Unit

Harris Corporation Names New President and CEO


© Devoncroft Partners. All Rights Reserved.


RealD Files Prospectus for $200m Secondary Stock Offering. All Proceeds Destined for Current Shareholders Rather than the Company Itself.

broadcast technology market research | Posted by Joe Zaller
Nov 29 2010

RealD, a global licensor of 3D technologies, last week filed a prospectus with the Securities and Exchange Commission to sell 7,815,001 shares of its common stock, along with an additional 1,172,250 shares as an over-allotment.  Based on today’s stock price of around $26.50, this translates to about $207m (about $238m is the overallotment shares are also sold).  

It’s always interesting to read this kind of document because it offers information about the company’s financial performance and business strategy.  RealD’s prospectus is also interesting because it provides useful data about the take-up of 3D, which is something that many in the broadcast industry are working to understand.

What’s also interesting about this deal is that apparently none of the money from the offering will go to RealD.  Instead, it will all go to current stockholders, including directors and executives.

According to the prospectus filed with the SEC “The selling stockholders, including certain members of our board of directors and management, will receive all of the proceeds from this offering, and we [the company] will not receive any proceeds from the sale of shares in this offering.”

The largest beneficiary will be Shamrock Capital Advisors, whose “Capital Growth Fund II” is selling almost 5.4 million shares of RealD, or 99.9% of its holdings in the company, as part of the offering.   

Other company insiders will benefit as well.  For example, both company chairman and CEO Michael Lewis and company president Joshua Greer are selling 10% of their holdings in the company.  Lewis and Greer stand to gain about $17m each from the offering, and almost $30m each if all the shares allocated for overallotment are sold. Company CFO Andrew Skarupa is also selling 10% of his current holdings in the company for about $2.2m.  Skarupa will make about $3.8m if all the shares allocated for overallotment are sold.

Several others affiliated with the company are also using the offering to sell “restricted stock unit awards that are exercisable within 60 days of September 24, 2010.”

It’s interesting to see so many RealD insiders selling their shares on the heels of their IPO, which was just over four months ago.  Especially when you consider a Wall Street Journal article published at that time, which said that “company insiders and investors at RealD raised more money in the company’s recent initial public offering than the company did.”

Lewis and Greer each received $17.1m in July of this year when they both sold 1.15 million shares in the company’s IPO.  Skarupa made about $2.2m from the company’s IPO.  Shamrock, who recently bought Screenvision from Technicolor and ITV, made about $34.4m when it sold 2.3 million RealD shares during the company’s IPO.

The chart below shows a breakdown of how many shares are being sold by each shareholder, along with the amount they stand to receive for these shares for both the initial and overallotment offerings.  Please note that this chart assumes a share price of $26.50 per share (the price at the time of writing).

Sellers of RealD shares (values based on a share price of $26.50.  Source RealD Form S-1 filed with SEC on 11/22/2010


You can read the full RealD share offering prospectus here.


%d bloggers like this: