Arris to acquire Pace in US$2.1bn merger

US network equipment specialist Arris is buying British set top box maker Pace in a US$2.1bn cash-and-stock deal to further consolidate the TV middleware market.
The acquisition gives Arris a large scale entry into the satellite segment, as well as tax…

US network equipment specialist Arris is buying British set top box maker Pace in a US$2.1bn cash-and-stock deal to further consolidate the TV middleware market.

The acquisition gives Arris a large scale entry into the satellite segment, as well as tax benefits from incorporating the combined company in the UK.

It comes two years after the US group’s US$2.35bn deal for Google’s cable-focused STB unit Motorola Home, which Pace had earlier tried to buy through a reverse takeover.

Arris CEO Bob Stanzione said acquiring Pace will broaden its portfolio and expand its international presence amid an increasingly competitive market.

“We expect this merger will enable Arris to increase its speed of innovation,” Stanzione said.

A number of new entrants have cropped up over the past several months, and the sector has been facing growing competition from increasingly sophisticated software devices that integrate TV with the internet.

Pace’s strategy to diversify its business to help tackle this trend saw it buy US fibre solutions firm Aurora Networks early last year – soon after missing out on the Google sale.

Allan Leighton, Pace’s chairman, said: “The Pace directors believe that Arris’ offer recognises this value and also gives our shareholders the opportunity to share in the future success of the combined group.

“While we believe that Pace is strongly positioned to continue to execute its strategy in the medium and long term, we believe that the combination of the complementary Arris and Pace businesses will create a platform for future growth above and beyond our standalone potential.”

Pace shareholders will get £1.325 of cash and 0.1455 shares in the combined company for each Pace share they own. Arris, which will use a BofA Merrill Lynch loan to help fund the cash portion, said the deal reflects a 28% premium on Pace’s share price before the transaction was announced.

Arris shareholders will ultimately own about 76% of the combined group, with Pace investors owning the rest.

The companies expect to close the deal in late 2015, subject to the approval of their shareholders and regulatory clearances.

Although ‘New Arris’ will be incorporated in the UK, its headquarters will be in the US, where it is expected to list on the NASDAQ stock exchange.

Arris hired Evercore as lead financial adviser, Troutman Sanders as lead US legal counsel, and Herbert Smith Freehills as lead UK legal counsel. BofA Merrill Lynch is also financially advising Arris on the transaction.

Pace mandated JP Morgan as lead financial adviser, and Travers Smith as lead legal counsel.