Leighton to conduct strategic review as Pace set for change

Mr Leighton is to take over as chairman from Mike McTighe, who is retiring and stepping down after five years in the role.

Mr Leighton, the man credited with helping to turn round Asda in the 1990s, is in the process of bringing in outside consultants to conduct the review.

“Here is a company that has the potential to be a great technology business,” he said.

“The reason I want to do a strategic review is to look at where we are today, see what we are doing well in and where we should be heading, particularly in emerging markets.”

He said it is too early to say what direction the Saltaire-based company should head in.

“I’d like to see a thorough piece of work that’s analytical,” he said. “I’ve followed Pace for a long period of time, it’s a very interesting business. From my time at BSkyB I know about these businesses, it’s a fascinating space for me.”

The group’s shares rose 2.5 per cent on the news of Mr Leighton’s appointment, a rise of 2.9p to 117.8p.

Analyst Ian Robertson at Seymour Pierce said there could be a conflict of interest as BSkyB owns Amstrad.

But Mr Leighton said any conflict of interest between Pace and Amstrad was immaterial.

Pace, which is the world’s biggest maker of set-top boxes, shocked the City on May 10 with the news that profits would be hit by a poor performance in Europe and higher supply chain costs due to Japan’s earthquake, sending its shares down 40 per cent to a two-year low.

The company also blamed inventory issues and the surprise closure of the MultiDweller Pace Networks business, prompting Mr Robertson at Seymour Pierce to say: “Some of the reasons are credible and sensible, but there are others which look a bit like: ‘The dog ate my homework’.”

The warning was the second blow to investor confidence. In March, Pace upset the market with the surprise announcement that it would miss revenue forecasts in 2011.

The group failed to mention that shortfall was due to a major order from a key US customer being pushed back to 2012. This came out at the analysts’ meeting, landing the company in hot water.

Speaking yesterday, analysts at Espirito Santo Investment Bank said: “The appointment of Allan Leighton as the new non-executive chairman is a positive step, in our view.

“Given the recent disappointing updates along with Pace’s poor investor communication, a change of leadership is welcome.”

Seymour Pierce said Mr Leighton has an impressive track record, but they questioned whether kicking off with a strategic review is necessary and feared damaging change.

“We hope that he checks the bathwater for babies first,” Seymour Pierce analysts said.

However, Mr Leighton is not expected to instigate any major changes to top management.

He declined to comment on any actions he may take, adding that it is too early to say what the strategic review might conclude.

“My style is I’m very open, very straightforward,” he said. “I feel I can help Pace.”

Analyst Vijay Anand at Espirito Santo said there are several possible outcomes of Mr Leighton’s review. These include revisiting the medium-term targets, changes in the senior management team or an outright sale.

But in terms of a trade buyer there are no obvious candidates.

WH Ireland analyst Eric Burns said: “If anything, the European and US electronics players have been divesting these sorts of business not acquiring them, witness Philips selling their set top business to Pace and also Motorola trying to hive off its business last year.”

Mr Burns also believes that private equity is a long shot as given the current uncertainty, Pace doesn’t fit the classic private equity model.

Mr McTighe said Pace has changed beyond recognition since he was appointed chairman five years ago, when the company was dependent on one customer – BSkyB – and was on the verge of going bust.

“We have diversified the business onto a global scale,” said Mr McTighe. “The challenge Allan faces is cementing that position and deciding how to take the business forward from here.”

Mr McTighe, who is also chairman of retailer JJB Sports, admitted that the company’s relationship with the City needs work.

“It is fair to say we haven’t spent as much time with our shareholders as we should have and we haven’t been as clear perhaps as we should have in describing the business in a way they can digest and understand,” he said.

Last month Pace’s chief executive Neil Gaydon apologised to shareholders for “dropping the ball” following the profits warning.

Mr Gaydon said: “Clearly, the first half has not been good enough and I apologise and take responsibility.

“We have a good company but have faltered at a bad time to do so. Some of it is a dropped ball by management and we tried to make that clear. The discipline has been in the company for years and we lost some of that as we have grown.”

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