Private Equity Firm Invests $1B in Motorola Solutions
Wednesday, August 05, 2015 | Comments

Motorola Solutions announced a $1 billion investment from technology investment firm Silver Lake and reported its second-quarter financial results. Motorola Solutions expects to use the Silver Lake investment to accelerate growth in its smart public-safety solutions and services businesses through new partnerships, investments and acquisitions, a statement said.

“Silver Lake has a proven track record of creating value by partnering with leading technology companies around the world,” said Greg Brown, chairman and CEO of Motorola Solutions. “This strategic partnership and investment combine Silver Lake’s expertise in technology products, services and information solutions with our vision to create safer communities and more successful businesses. It represents a strong vote of confidence in our company’s strategy and future growth opportunities.”

Press reports earlier this year reported rumors that Motorola Solutions was looking to sell its business.

Motorola Solutions also announced its intent to repurchase up to $2 billion of stock through a tender offer. The company will fund the tender offer with a combination of existing cash on the company’s balance sheet and a portion of the proceeds from the $1 billion strategic investment by Silver Lake.

“These steps reflect our confidence in the future value of our business while allowing us to maintain considerable financial flexibility to pursue further growth,” Brown said.

Under the terms of the Silver Lake agreement, the firm is purchasing $1 billion aggregate principal amount of 2 percent convertible senior notes due 2020 with an initial conversion price of $68.50 per share. The initial conversion price represents a conversion premium of 17 percent over the volume-weighted average price of the company’s common stock sale price of $58.55 per share on the New York Stock Exchange during the 30 trading days ended Aug. 4.

In connection with Silver Lake’s investment, Egon Durban and Greg Mondre, managing partners of Silver Lake, will be appointed to Motorola Solutions’ board of directors when the transaction closes, expected to occur in the third quarter.

“Motorola Solutions is an iconic company and the global market leader in public-safety technology,” said Durban and Mondre. “We believe it is creating a new era in data-rich public-safety communications and has significant potential for growth. Its core business is unrivaled in the United States and around the world with a broad and loyal customer base, an outstanding record of reliability, and growing reach and scale driven by technology innovation. Greg Brown and his talented management team have a strong record of performance and corporate transformation that has created exciting new opportunities to innovate and expand the company’s next-generation software, smart public safety and service offerings.”

Durban joined Silver Lake in 1999 as a founding principal. He is based in the firm's Menlo Park, California, office and has previously worked in the New York office and the London office, which he launched and managed from 2005 to 2010. Durban serves on the board of directors of Dell and Intelsat and is chairman of the board of directors of WME Entertainment.

Mondre joined Silver Lake in 1999 and is based in New York. He serves as a director of Avaya, Go Daddy, Red Ventures, Sabre Holdings and Vantage Data Centers and is on the operating committee of SunGard Capital Corp.

Silver Lake has more than $26 billion in combined assets under management and committed capital. The firm’s portfolio of investments collectively generates more than $85 billion of revenue annually and employs more than 170,000 people globally. Silver Lake has a team of about 100 investment and value creation professionals located in New York; Menlo Park; San Mateo, California; London; Hong Kong; and Tokyo.

Motorola also reported its earnings results for the second quarter. Sales declined 2 percent, including $53 million of unfavorable foreign currency impact. Sales increased 2 percent in constant currency. These results reflect 5 percent growth in North America, driven by increased product sales.

Overall product sales declined 2 percent because currency headwinds and weakness in Europe and Africa and Latin America, while services declined 1 percent primarily because of unfavorable currency impact and lower iDEN revenue.

GAAP operating margin was 18.6 percent of sales in the second quarter of 2015 compared with 9.9 percent in the second quarter of 2014; non-GAAP operating margin was 19 percent of sales, compared with 14.4 percent in the second quarter of 2014. These results were driven by $69 million in lower operating expenses compared with the second quarter of 2014, due largely to cost reduction and simplification initiatives across all categories as well as lower pension expense and a stronger dollar.

The second quarter of 2015 GAAP effective tax rate was 30 percent. That compares with a tax rate of 20 percent in the second quarter of 2014, which included $30 million of net tax benefit associated with the net reduction in previously unrecognized tax benefits. The second quarter of 2015 non-GAAP tax rate was 35 percent, compared with a tax rate of 25 percent in the second quarter of 2014. The full-year non-GAAP tax rate is expected to be about 33 percent. The full-year cash tax rate is expected to be approximately 15 percent.

The company generated $140 million in operating cash from continuing operations during the quarter, reflecting an increase of $22 million over the prior year. Free cash flow was $92 million in the quarter. The increase was largely driven by improved earnings and lower pension contributions.

The company ended the quarter with cash and cash equivalents of $3.1 billion and a net debt position of about $300 million. The company repurchased $285 million of common stock in the second quarter and paid $72 million in cash dividends. The company grew sequential backlog for the third straight quarter, ending at $6 billion. Those results were primarily because of growth in North America, Asia Pacific and the Middle East regions.

“The company delivered double-digit earnings and free cash flow per share growth in the second quarter, driven by strong North America results and improved operating leverage,” said Brown.

Motorola said it had $45 million of orders with two law enforcement agencies for the APX 8000, the company’s newest Project 25 (P25) radio that integrates broadband via Wi-Fi. The company also announced a $29 million contract with Bell Mobility for a provincewide P25 system, subscribers, and 10 years of hardware and software support for the government of New Brunswick in Canada.

Also during the second quarter, the company announced $153 million of multi-year managed and lifecycle services contracts for 10 customers in North America, Asia and Europe; $66 million in key vertical expansion areas of petro-chemical and utility industries, with four separate customers worldwide; and a $12.5 million purchase from the U.S. federal government for WAVE push-to-talk (PTT) software application related to the company’s recent acquisition of Twisted Pair.

In the third quarter, Motorola Solutions expects a revenue decline of 1 to 3 percent compared with the third quarter of 2014. That assumes a $50 million unfavorable currency impact, which translates to revenue of flat to 2 percent in constant currency. The company’s full-year revenue outlook remains unchanged as revenue is expected to be flat to down 2 percent compared with 2014. This outlook translates to revenue growth of 1 to 3 percent in constant currency.

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On 8/5/15, SCOTT ADAMS said:
General Dynamics has already said the share value far exceeds the asset value, making any outright purchase impossible so ... Motorola is going private.

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