23rd Apr 2015 12:08
LONDON (Alliance News) - Shares in set-top TV box maker Pace PLC were up 34% Thursday afternoon after it ageed to be acquired by US broadband network equipment maker Arris Group Inc for GBP1.4 billion in a cash and shares, the latest so-called inversion deal that will see Arris domicile in the UK to take advantage of lower taxes.
Under the terms of the deal, shareholders of the FTSE 250-listed company will receive GBP1.325 in cash and 0.1455 of a Arris share for each Pace share, making a total consideration of GBP4.265 per share, a 28% premium to Pace's closing price on Tuesday.
Shares in Pace are trading up 31% at 436.00 pence Thursday morning, making it comfortably the best performer on the FTSE 250 on the day and marking a 13-month high for the stock.
Pace shareholders will get approximately 48.2 million shares in the New Arris business, which will be listed on the Nasdaq in New York, and will hold a 24% stake in the new business, with Arris holding the remaining 76%.
Bob Stanzione, the chairman and chief executive of Arris Group, will become the chairman and chief executive of the combined entity.
"Adding Pace's talent, products and diverse customer base will provide ARRIS with a large scale entry into the satellite segment, broaden our portfolio and expand our global presence," Stanzione said in a statement.
Pace has grown into a UK technology global success story, providing its boxes to the likes of AT&T, Comcast and DirecTV in the US, Liberty Global, Sky Deutschland and Canal+ in Europe, as well as big payTV operators in Latin America and the rest of the world.
Pace demonstrated its value Thursday, saying in a trading update that profit rose in the first quarter of 2015, buoyed by higher revenue and gross margins and lower costs, and demand from all of its markets and product segments is building. It continues to expect revenue to be stronger in its second half than in the first half. Pace will announce its full first-half results on July 28.
However, analysts have expressed concern about Pace's future, as TV viewers start increasingly switching to online streaming of programmes and films rather than watching via set-top boxes.
"Pace's core consumer premise equipment business faces an uncertain outlook around the longevity of set-top boxes and more intelligence going to the cloud, reducing in-home capex. This offer crystallizes value for Pace shareholders," said Liberum analyst Eoin Lambe.
"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 Chairman Allan Leighton said.
Liberum also noted that Arris will benefit from the UK's corporate tax rate, which is around 20%, well below the US company's expected tax rate in the first quarter of 2015 of 35%, and as 24% of shareholders are still UK-based the deal would qualify as a tax inversion.
The enlarged company, called New Arris, will be incorporated in the UK but will retain its headquarters in Suwanee in the US state of Georgia. As a result of re-domiciling in the UK, Arris said it expects the deal to reduce its US non-GAAP effective tax rate to around 26% to 28% in its first full year following closing.
Several US firms have looked to acquire UK companies and re-domicile in the UK over the past year to take advantage of the tax differential between the two companies. The US Treasury introduced new measures last year an in attempt to curb such deals, which led to the collapse of US drugsmaker AbbVie Inc's takeover of Shire PLC .
However, inversion deals are still taking place, with Synergy Health PLC last October agreeing to be bought by Steris Corp for USD1.9 billion in a deal that will see the enlarged company headquartered in the US but incorporated in the UK. The recent rise in the dollar against the pound has only made such deals more attractive.
The Arris-Pace deal could draw scrutiny from competition regulators, Liberum also said, noting that the companies are two largest suppliers of consumer premise equipment globally, and they are especially strong in the US.
By Sam Unsted; [email protected]; @SamUAtAlliance, and Hana Stewart-Smith; [email protected]; @HanaSSAllNews
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