Barcode printer maker Zebra Technologies Corp said it would buy Motorola Solutions Inc's enterprise business, which makes rugged mobile computers, tablets and barcode scanners, for $3.45 billion in its biggest deal ever.
The deal will allow Zebra, whose products help companies such as Amazon Inc track inventory and supply chains, to enhance its portfolio through a range of Internet-connected devices.
Zebra's shares fell 11 percent to $60.77 on the Nasdaq on concerns the company's borrowings to fund the deal would be as big as its market value of $3.44 billion as of Monday's close.
Zebra will finance the deal through a combination of $200 million cash on hand and $3.25 billion in debt, comprising a credit facility and issuance of debt securities.
"It's an aggressive play by Zebra to fortify their position in the entire AIDC (automatic identification and data capture)space," Northcoast Research analyst Keith Housum said.
"It's a good long-term play but in the short term, I think it's going to be challenging," Housum said, noting the large debt and the fact that the enterprise business has struggled to grow organically in the past two years.
The business, which accounts for about a third of Motorola Solutions' total revenue, has suffered as clients delay orders and cut spending.
Zebra, however, said it expected the deal to add to earnings immediately after closing at the end of this year.
After the sale, Motorola Solutions will be left with its core government and public safety business. It will also retain its iDEN products portfolio, which is a part of its enterprise business.
"Upon closing of the transaction, we intend to return the proceeds to our shareholders in a timely fashion," Motorola Solutions Chief Executive Greg Brown said in a statement.
Morgan Stanley, the financial adviser to Zebra, is providing a financing commitment for the debt.
Goldman, Sachs & Co and JP Morgan Securities LLC are Motorola Solutions' financial advisers.
About 4,500 Motorola Solutions' employees will join Zebra's workforce of about 2,600 as of January 25.
Zebra's rivals in its printing business include Hewlett-Packard, Epson and Lexmark, while Ubisense and AeroScout are among its competitors in the location tracking products business.
In October, Zebra launched Zatar, a Web-based software that allows companies to deploy and manage devices and sensors connected to the Internet, also called the "internet of things." (link.reuters.com/tyn58v)
Zebra acquired Hart Systems, which provides Web-based inventory management software to the retail industry, in December.
Global merger and acquisition activity has surged this year, mainly in the technology industry. Deals worth about $618.4 billion have been completed, with a third of those in the technology, media and telecom sector, according to Thomson Reuters data.
Motorola Solutions estimated its quarterly results below analysts' expectations, saying volumes in its North America government business were lower than expected and some orders in its enterprise business were delayed.
The company estimated an adjusted profit of 50 cents per share and sales of about $1.8 billion for the first quarter ended March.
Analysts on average were expecting a profit of 51 cents per share on revenue of $1.88 billion, according to Thomson Reuters I/B/E/S.
Motorola Solutions' shares were down 1.3 percent at $62.92 in afternoon trading on the New York Stock Exchange.
Zebra estimated an adjusted profit of 88-91 cents per share and sales of $287 million-$289 million for the first quarter.
Analysts on average were expecting adjusted earnings of 83 cents per share on sales of $281.6 million.
Both Motorola Solutions and Zebra are scheduled to report their results in May.
(Additional reporting by Soham Chatterjee and Patturaja Murugaboopathy in Bangalore; Editing by Kirti Pandey)