Harmonic to Acquire Omneon

Combined firm would create playout and production giant
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Transmission and compression vendor Harmonic announced late Thursday (May 6) a $274 million deal to acquire video storage and server vendor Omneon, a deal that would position the new firm as a major player across the professional content delivery chain from ingest to editing to playout to the home.

Harmonic's distribution encoders are used by pay-TV operators like DirecTV, local broadcasters and major cable operators, who also use the company's QAM transmission equipment and VOD systems. It also provides the popular, low-cast Rhozet transcoding tools for adapting content for Web and mobile delivery. Omneon first made a name for itself in selling transmission servers to major programmers like Turner, The Weather Channel and Discovery, and in recent years has expanded its market share into production by providing networked storage systems that link to third-party editors and camera systems.

The new company will have a combined customer base of over 2,000 customers across more than 100 countries, a global R&D organization of 450 engineers, a global sales and service organization of 330 people, and a network of over 250 global sales channel partners.

 "This proposed combination will position Harmonic to become a global leader in video infrastructure for the digital media industry," said Patrick Harshman, president and CEO of Harmonic, in a statement. "Media companies are being driven by ever-increasing demand for video content coupled with consumers' desire to consume video anytime and anywhere. At the same time, the dramatic growth of video delivery over broadband and wireless networks is blurring traditional boundaries between content producers and service providers. With our deep customer relationships with content producers and service providers, and with our market leading technologies that span content acquisition through delivery, we believe that our combined company will be uniquely positioned to capitalize on these trends and to accelerate revenue growth."

The two Sunnyvale, Calif.-based firms have signed a definitive agreement, approved by the Boards of Directors of both companies, under which Harmonic would acquire Omneon for an enterprise value of approximately $274 million in cash and Harmonic stock. Harmonic will pay $190 million in cash and issue approximately 17.1 million shares of its common stock. This represents an enterprise value of approximately $274 million, based on the closing price of Harmonic common stock on May 5 and is net of Omneon's cash balances which are expected to be approximately $32 million at closing.

The proposed acquisition is subject to customary closing conditions and regulatory approvals, and is expected to close in the third quarter of 2010. The proposed acquisition is also subject to the approval of Omneon's stockholders, and Harmonic has entered into voting agreements with holders of a majority of Omneon's outstanding shares of capital stock, pursuant to which such Omneon stockholders agree to vote in favor of the transaction.

BofA Merrill Lynch acted as exclusive financial advisor to Harmonic on the deal.

  
Most of the Omneon executive management team is expected to join Harmonic at closing, including founder Larry Kaplan and CEO Suresh Vasudevan. For the year ended Dec. 31, 2009, Omneon's revenues were approximately $105 million. Omneon has approximately 280 employees worldwide, with research and development facilities in Sunnyvale and Beaverton, Oregon.

"The combined company will have industry-leading technology and expertise in video compression, processing and delivery, video-optimized storage, production and playout servers, and media management," said Vasudevan. "Not only are the technologies complementary, but we see unique opportunities to leverage our technology adjacencies and drive market-leading innovation. We are very excited about this combination and the opportunities it creates for our customers and employees."

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