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Terayon Gets Cherry-Picked for $140M

Continuing the quick clip of consolidation in the cable-equipment market, Motorola said it will acquire Terayon Communication Systems — developer of the CherryPicker digital-video processor — for about $140 million in cash.

The deal, Motorola's fifth video or data acquisition in the last 10 months, came after Terayon said it resolved a comprehensive review of its accounting practices over the last year and a half.

Terayon brings to Motorola proven technology for processing video on the edges of telecommunications networks. The Santa Clara, Calif.-based company said it has deployed more than 7,800 CherryPicker and other digital-video system components to date for inserting ads and providing other services. Terayon reported $76.4 million in revenues for 2006, and a net loss of $3.8 million.

“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” techniques, Motorola's Connected Home Solutions president Dan Moloney said in announcing the deal.

Buckeye CableSystem director of engineering Jim Brown, who has deployed Terayon's DM 6400 CherryPicker at the Toledo, Ohio-based operator, said Motorola doesn't have any overlapping products so he is optimistic the company will continue to maintain and develop the Terayon systems.

Also, he said, “Terayon's tech support has never been real strong. It hasn't been 24/7 so hopefully we'll get a little more support from Motorola.” While even Motorola's support “has not always been as good as it could have been,” Brown said it has improved in the last year.

Analysts noted that Motorola got Terayon for a relative bargain: At the height of the tech bubble, in February 2000, Terayon's shares topped $120 (adjusted for splits). By January 2001, it had plunged to less than $8. Motorola's bid last week was $1.80 per share, slightly below the closing price the day before the announcement.

“Motorola has now built up a nice portfolio for an amazingly little amount of money,” said Infonetics Research analyst Jeff Heynen, pointing to the company's deals last year for VOD vendor Broadbus Technologies ($181 million) and IPTV equipment maker Tut Systems ($39 million).

Other companies said to have been interested in Terayon included Cisco Systems, Harmonic and Arris Group.

Since November 2005, Terayon had been wrestling with a nagging accounting issue, related to revenue recognition, which affected its financial results dating back to 2000. The company in January 2006 announced layoffs, saying it would focus on digital-video applications, and was delisted from the NASDAQ a year ago because it was late with filings.

In late December 2006, Terayon restated financial results for its previous five fiscal years. Earlier this month, Terayon said the Securities and Exchange Commission terminated its investigation of the company's accounting review.

Motorola and Terayon said they expect the deal to close before the end of September. The transaction has yet to be approved by Terayon's stockholders, and it must also receive customary regulatory approvals.

Terayon, which has about 114 employees, will become a subsidiary of Motorola, which said it intends to maintain Terayon's offices in Santa Clara. Motorola said the transaction is expected to be neutral to its earnings per share in the first year following closing, excluding special charges.