UTStarcom (UTSI) Announces Strategic Initiatives; Will Divest IPTV Business
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UTStarcom Holdings Corp. (Nasdaq: UTSI), announced strategic initiatives that together advance its efforts to transition into higher growth, more profitable areas and enhance the value of the business.
Specifically, these strategic initiatives include:
As part of this strategy, the Company will divest its IPTV equipment business, which will become a privately-held standalone company. Once the divestiture transaction closes, Mr. Jack Lu will lead the new IPTV equipment business, thus leaving his position as UTStarcom's Chief Executive Officer. The divestiture is a means of effectively redeploying capital to support higher return opportunities, particularly in the value-added services area. It accelerates UTStarcom's ongoing transition into a higher growth business and will have an immediately positive effect on the Company's margin structure and profitability profile. The IPTV business currently accounts for approximately one-third of revenue and is expected to negatively contribute to the overall Company results. This strategic initiative will significantly reduce UTStarcom's expenses by US$17 million per year.
UTStarcom will divest the IPTV business, transferring all assets, liabilities and managerial duties to a new ownership team headed by Mr. Jack Lu. UTStarcom will purchase a US$20 million convertible bond that will be convertible into 33% of the new IPTV business's common stock in five years. The transaction immediately strengthens UTStarcom's balance sheet, removing aggregated liabilities such as customer advances and accrued service costs that are currently associated with the IPTV business.
The new standalone IPTV business will have access to a greater range of options to adapt to competitive conditions. At the same time, it will enter into a brand licensing arrangement with UTStarcom to ensure business continuity for customers and business partners. The transaction is expected to close by the end of August.
As a result of the transaction, the Company will begin reporting results from the IPTV division as discontinued operations in the third quarter of 2012 and for all comparable periods.
The Company noted that based on current information, it expects second quarter results to be in line with initial internal expectations and to reflect strong sequential improvement versus the first quarter of 2012. Also, this strategic initiative is expected to immediately improve UTStarcom's profitability by removing a business with rates of return that are lower than those generated by the rest of the Company.
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Specifically, these strategic initiatives include:
- The acceleration of the growth of the Company's media operational support services business.
- The divestiture of the Company's IPTV equipment business which will become a privately-held, standalone company.
- The appointment of former Board member and technology industry veteran Mr. William Wong as Chief Operating Officer, effective immediately. Mr. Wong will transition into the Chief Executive Officer role at UTStarcom upon close of the divestiture transaction.
- Mr. Jack Lu will leave UTStarcom to lead the IPTV equipment business once the divestiture transaction closes.
As part of this strategy, the Company will divest its IPTV equipment business, which will become a privately-held standalone company. Once the divestiture transaction closes, Mr. Jack Lu will lead the new IPTV equipment business, thus leaving his position as UTStarcom's Chief Executive Officer. The divestiture is a means of effectively redeploying capital to support higher return opportunities, particularly in the value-added services area. It accelerates UTStarcom's ongoing transition into a higher growth business and will have an immediately positive effect on the Company's margin structure and profitability profile. The IPTV business currently accounts for approximately one-third of revenue and is expected to negatively contribute to the overall Company results. This strategic initiative will significantly reduce UTStarcom's expenses by US$17 million per year.
UTStarcom will divest the IPTV business, transferring all assets, liabilities and managerial duties to a new ownership team headed by Mr. Jack Lu. UTStarcom will purchase a US$20 million convertible bond that will be convertible into 33% of the new IPTV business's common stock in five years. The transaction immediately strengthens UTStarcom's balance sheet, removing aggregated liabilities such as customer advances and accrued service costs that are currently associated with the IPTV business.
The new standalone IPTV business will have access to a greater range of options to adapt to competitive conditions. At the same time, it will enter into a brand licensing arrangement with UTStarcom to ensure business continuity for customers and business partners. The transaction is expected to close by the end of August.
As a result of the transaction, the Company will begin reporting results from the IPTV division as discontinued operations in the third quarter of 2012 and for all comparable periods.
The Company noted that based on current information, it expects second quarter results to be in line with initial internal expectations and to reflect strong sequential improvement versus the first quarter of 2012. Also, this strategic initiative is expected to immediately improve UTStarcom's profitability by removing a business with rates of return that are lower than those generated by the rest of the Company.
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