Pace sets sights on Motorola after BT setback

Saltaire-based Pace is one of a number of bidders, who are thought to include France’s Technicolor, Georgia’s Arris and private equity companies, for the Motorola business, which is now owned by Google.

Yesterday Pace said it has submitted an indicative, non-binding proposal to Google for a potential acquisition of the Motorola Home business.

The business designs, manufactures, sells, installs and services set-top boxes for digital and internet protocol (IP) video, satellite and terrestrial broadcast networks. It is estimated that it could be sold for up to £1.5bn.

Pace said discussions with Google are at a preliminary stage and there is no certainty that an offer will be made.

Any offer would be classed as a reverse takeover as Motorola is bigger than Pace, which has a market capitalisation of around £600m. This meant that Pace’s shares were suspended at 185.4p.

When the shares were suspended yesterday afternoon they had fallen 3.3 per cent or 6.4p following confirmation that BT will not use Pace to supply set-top boxes for its YouView internet TV service, which was seen as a blow for Pace.

In a statement BT said: “BT has agreed with Pace that the company will no longer develop BT’s YouView set top box. BT will continue to give YouView customers the award-winning Humax box.

“Pace will continue to supply BT Vision set top boxes.”

YouView boxes receive all the free channels and offer pay-per-view access to movies and Sky packages.

BT Vision is a premium TV service for broadband customers.

Yesterday Pace said its shares will remain suspended until it decides whether to make a bid for Motorola Home.

It will have to either give shareholders information about the bid or else say it is no longer in discussions with Google for the shares to start trading again.

Analysts at Espirito Santo said: “There is strong rationale for combining Pace and Motorola’s set-top box business unit as it could generate significant cost synergies.

“It would create an undisputed leader in the set-top box market with a 25 per cent market share with more than 10 per cent market share for the next biggest competitor (i.e Technicolor).”

There is speculation that Google may help finance the deal.

The acquisition would transform Pace which has performed well this year after a management overhaul following a troubled year in 2011.

Yesterday Pace said it continues to deliver on the strategic plan outlined in November 2011.

Last month Pace said the cable TV market is resilient despite the tough economy and the threat from internet TV.

The group, the world’s biggest maker of set-top boxes, said it is making “good progress” on its strategic plan, aimed at modernising and restructuring the group after a series of profit warnings.

Pace said the outlook for the rest of the year has improved, with revenues for 2012 now expected to be flat on 2011.

It added disruption to its supply chain – when key hard disk drive suppliers were brought to a standstill a year ago by flooding in Thailand – had not hurt underlying earnings in its second half.

Despite warnings about the cable TV market being eclipsed by internet TV market entrants such as the NetFlix film service and Apple TV, Pace said: “The PayTV market continues to show resilience despite the uncertain economic conditions and previously feared disruptive threats from new over-the-top (OTT) market entrants.

“Our major customers have performed well with sustained consumer demand and strong profitability.”

Pace has prioritised expanding into software, services and integrated solutions. It said the need of operators to support complex home networks is driving strong demand.