TV technology company Pace is to be sold to US firm Arris Group for £1.4bn in a deal that Pace said will enable it to grow beyond its standalone potential.
The deal, which involves the creation of a new company that will be incorporated in the UK, will help Arris reduce corporate taxes and expand its operations outside North America.
Arris said the deal will reduce its tax rate from 37 per cent to between 26 and 28 per cent.
The deal comes at a time when the traditional video service industry is being shaken up by “over-the-top” services, which allow consumers to stream videos through a high-speed broadband connection.
Both Pace and Arris make products that are used by telecommunications carriers to deliver these services, which are becoming increasingly popular as viewers shift away from cable TV services.
Pace shareholders will receive 132.5p in cash and 0.1455 new Arris shares for each share held, which is worth 426.5p per share.
The deal represents a 28 per cent premium to Pace’s close on Tuesday.
Arris shareholders will own about 76 per cent of the combined company, with Pace shareholders holding the remaining 24 per cent.
Pace chairman Allan Leighton said: “While the board believes that Pace is strongly positioned to continue to execute its strategy in the medium and long term, we also believe that the proposed transaction substantially recognises that potential as well as giving our shareholders the opportunity to share in the future success of the combined group.
“The combination of the complementary Arris and Pace businesses will create a platform for future growth above and beyond our standalone potential. We believe this is a great fit for both companies, our employees, customers and trading partners.“
The board of Pace said the terms of the transaction are in the best interests of the group’s shareholders and it intends to unanimously recommend that investors vote in favour of the deal at a general meeting to approve the merger.
Arris chief executive Bob Stanzione said the combined company would be better placed to compete in an increasingly competitive market.
“Over the past several months, there have been a number of new entrants both on the side of new services that are being offered over-the-top, as well as new devices that are used at homes in order to translate those services to video streams to serve television sets,” he said.
Arris’ largest customers include Comcast, Time Warner Cable and AT&T.
Arris will fund the cash portion of the deal through a combination of cash and debt. The company said it had secured a loan from Bank of America Merrill Lynch to fund the transaction.
Mr Leighton will tell Pace shareholders at the group’s AGM today that the group has made a good start to the new financial year.
In the period between January 1 and April 22, revenue was higher than the previous year and demand is building in all its markets as the year progresses.
Revenue will be stronger in the second half of 2015 than the first half, similar to 2014.
Gross margins and profits rose in the first quarter.