CommScope Holding Co., Inc. (NASDAQ: COMM) revealed yesterday that it will spin out the Home Networks business it created in January 2020 as a publicly traded company. The unit, focused on the broadband gateways (coaxial, fiber, and wireless), video set-tops, and in-home devices it gained as part of its acquisition of ARRIS (see “CommScope to buy ARRIS for $7.4 billion”), should become independent by the end of the first quarter 2022, the company expects. Meanwhile, CommScope President and CEO Chuck Treadway alluded to “cost reduction actions” in the rest of the company that would offset the loss of Home Networks business’s adjusted EBITDA.
The transaction will Home Networks transition to a new and independent publicly traded company, likely on NASDAQ, through a tax-free spin-off. Joe Chow, current Home Networks senior vice president, will stay with the spin-off as CEO. The board of directors, management, company name, and headquarters of the new company will be announced “after they are finalized,” according to CommScope.
The decision to shed the Home Networks business is a result of a reevaluation of the CommScope’s operations Treadway initiated when he joined the company last fall. That process evolved into “CommScope NEXT,” an initiative the company unveiled during its fourth quarter and year end 2020 earnings announcement that, in the words of Treadway, is “a multi-faceted program to drive growth that outpaces the market and drives significant shareholder and stakeholder value.”
The divestiture of the Home Networks operations is a significant first step in the CommScope NEXT process, according to Treadway. “Since I joined CommScope last October, the board and management team have been undertaking a comprehensive review of our portfolio of assets and how each contributes to our long-term growth strategy,” Treadway said. “As we proceeded with this review, it became clear that the Home Networks business’ distinct strategy, growth characteristics, investment requirements, and returns on invested capital are not aligned with the rest of our portfolio.
“We believe that Home Networks will be better positioned to deliver superior home and consumer-oriented products as an independent company,” Treadway continued. “In addition, we are moving quickly to streamline costs to create greater financial flexibility to invest in our growth. We expect the cost reduction actions we are taking in core CommScope to, at a minimum, offset Home Networks’ adjusted EBITDA and create savings we can reinvest in our business, which should result in post-spin leverage within core CommScope at no more than current levels.”
Meanwhile, Home Networks will benefit from a more optimized cost structure, focused R&D and sales teams, and the ability to innovate for the needs of its customers without potential distractions, CommScope believes.
What’s left?
Once the spin-out is complete, CommScope will focus its energies on its three remaining business units: Broadband Networks, Campus and Venue Networks, and Outdoor Wireless Networks. Home Networks accounted for 28% of CommScope’s business last year, second only to the Broadband Networks group (although its revenues were off 31% year-on-year). With Home Networks removed, 2020 division of business would see Broadband Networks accounting for 48% of the remainder, Campus and Venue Networks 32%, and Outdoor Wireless Networks 20%.
Meanwhile, CommScope’s Treadway told attendees on a conference call to explain the spinoff that the company also had begun those “cost-reduction actions” – which include layoffs, it would appear based on Treadway’s description of them as “difficult for the affected employees.”
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