UTStarcom Divests Personal Communications Division

After identifying 14 potential buyers and receiving four offers, UTStarcom (News - Alert) has decided to sell its Personal Communications Division (PCD) to a new entity, AIG Vantage Capital, controlled by AIG Investments.

 

The company expects to receive $240 million from this sale, with the potential to receive up to $50 million based on a three-year earn out provision based on working capital proceeds.

UTStarcom will transfer all employees, customers and operations to the new entity, expecting that the process will be seamless for customers and cause little disruption to ongoing operations. The transaction is expected to completed in two business days.

This divestiture is positioned as being consistent with UTStarcom’s strategic focus. The company examined its overall operations late last year and identified the PCD division as being outside of its core business strategy, which includes focusing on a suite of IP-based products, targeting geographic areas of strong growth and leveraging strong carrier relationships.

The PCD part of the business primarily distributes handsets and related accessories in North America and will continue to do so under new ownership. The new company is expected to be called Personal Communications Devices LLC and will be led by PCD’s current management team.

The Handset business unit of UTStarcom will continue to design and provide devices to be sold in the Americas through Personal Communications Devices, LLC as part of a supply agreement. The company will also sell devices directly to carriers in other areas of the world. All revenues from such ventures will be reported as third party revenue.

"With the divestiture of our PCD unit, our management team and employees will focus on pursuing the growth opportunities related to our core product suite of IPTV, NGN and Broadband offerings," said Peter Blackmore (News - Alert), UTStarcom's chief executive officer and president, in a Tuesday’s statement. "The streamlined business model will provide better transparency into our operations and improved liquidity as we execute our strategic plan."

UTStarcom identified three potential impacts as a result of this transaction. First, this divestiture relieves the company of the high operating capital requirements of the PCD unit. Second, the cash proceeds of the transaction will greatly improve the company’s net cash position. Third, UTStarcom will have a more transparent revenue profile as a result of this move.

“Operating as a standalone business will afford the new company greater distribution and financial flexibility and better positions us to capitalize on emerging market trends and strategic growth opportunities,” said Philip Christopher, the president of UTStarcom's PCD. “We will continue distributing handsets and accessories throughout North America, and we remain focused on providing our current manufacturing partners and carrier customers outstanding support and service."