What happened

Shares of CommScope Holding Company (NASDAQ:COMM) slumped on Thursday after the communications infrastructure solutions provider reported its third-quarter results and announced the acquisition of Arris International (NASDAQ:ARRS). CommScope stock was down 22.3% at 2 p.m. EST, while shares of Arris were up 10.1%.

So what

CommScope reported third-quarter revenue of $1.15 billion, up 1.9% year over year but $70 million below the average analyst estimate. Non-GAAP earnings per share came in at $0.59, up from $0.55 in the prior-year period but $0.07 below analyst expectations.

A notepad drawing of a fish eating a smaller fish.

Image source: Getty Images.

On top of announcing its third-quarter results, CommScope said that it had agreed to acquire telecommunications equipment manufacturer Arris International in a $7.4 billion all-cash deal. Arris shareholders will receive $31.75 for each share of Arris stock.

The deal should push CommScope's annual revenue to about $11.3 billion, and the company expects to extract more than $150 million in annual cost synergies within three years. In addition, private equity company The Carlyle Group will make a $1 billion minority equity investment as part of the financing for the transaction.

Now what

The $7.4 billion price tag, which includes debt, compares with annual sales for Arris of about $6.7 billion. Arris produced free cash flow of $449 million in 2017, but its GAAP net income was just $92 million.

The steep decline in CommScope stock on Thursday may be due to the company's lackluster third-quarter results, but investors may also not like the size of this deal. CommScope will take on $6.3 billion of debt to finance the transaction, adding to the nearly $4 billion of debt already on the books.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.