Zebra Technologies Corp. (ZBRA:US) is buying a unit of Motorola Solutions Inc. (MSI:US) for $3.45 billion, borrowing most of the amount for a bet on mobile-computing services for businesses that need to track employees and products.
Zebra plans to fund the deal with about $200 million of cash and $3.25 billion in new debt. That’s almost as much as Zebra itself is worth (ZBRA:US), based on yesterday’s closing stock price, which valued the company at about $3.4 billion.
Both companies offer bar-code scanning, radio-frequency identification and other technology that companies can use to control their inventory, whether it’s retailers stocking shelves or hospitals recording doses of medicine. Motorola also has specialized tablets and computers for various industries.
“For Zebra, this is an opportunity to bundle additional products into the portfolio they already offer their customers,” said Tavis McCourt, an analyst with Raymond James Financial Inc.
Zebra joins companies from Intel Corp. to Nvidia Corp. in investing in technology for the market known as the Internet of Things, where objects with sensors are connected online and can be moved or altered based on their location and conditions.
“Motorola does not have the enterprise focus or creativity to compete with tablets and iPhones -- I think Zebra does,” said Michael Genovese, an analyst at MKM Partners. “This is a good transaction from that perspective.”
Zebra jumped 2.5 percent to $70 at 9:38 a.m. in New York. Motorola was little changed at $63.81.
The deal leaves Motorola, once a giant of the wireless business, with only its government-services unit and some leftover network technology, called iDEN. The company split in two in 2011, cleaving off a mobile-phone business that was eventually acquired by Google Inc.
“We thought doubling down on government and public safety made sense,” Motorola Chief Executive Officer Greg Brown said on a conference call today. “It allows us to be manically and singularly focused on growing the public-safety business.”
The government unit provides two-way radios, mobile computers and other communications equipment and networks for emergency personnel, police and utilities.
“Motorola is very excited about its government business. They want to take the two-way radio and expand into LTE and new software technology for first responders,” McCourt said. “The enterprise business has become increasingly noncore.”
The combination of Zebra and the Motorola Solutions unit would have had pro-forma sales in 2013 of about $3.5 billion, according to a statement today. About 4,500 Motorola employees will join Zebra. Both companies are based in the Chicago suburbs -- Motorola in Schaumburg, Zebra in Lincolnshire.
Motorola will return the proceeds of the sale to shareholders, while Zebra said the purchase will immediately add to its earnings. The companies plan to complete the deal by the end of this year.
Motorola also said today that preliminary first-quarter revenue (MSI:US) was $1.8 billion, compared with an average estimate for sales of $1.88 billion in a Bloomberg survey of analysts. The company said it experienced lower demand in its North American government business, and lower-than-anticipated enterprise sales.
Morgan Stanley is financial adviser to Zebra on the deal, while Goldman Sachs Group Inc. and JPMorgan Chase & Co. are advising Motorola Solutions.
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