Pace Becomes Top Bidder for Google Unit

on Dec 11, 2012

Today The Telegraph reported that Pace, the UK maker of TV set-top boxes, has made an offer to acquire part of Motorola Mobility from technology giant Google.

**The Deal**
The Yorkshire-based technology group has become the first public bidder for Google’s set-top boxes business eyeing a deal that could exceed by far its own market capitalisation. According to a person familiar with the matter quoted by the Financial Times, the auction could raise between $1 billion and $2.5 billion (£622 million – £1.55 billion). If the bid gets close to the high end of that range, it would dwarf Pace’s valuation, which stood at below £600 million on Monday. “Discussions with Google are at a preliminary stage and there is no certainty as to whether any agreement regarding any transaction will be reached,” the company commented in a statement.

If Pace goes through with the acquisition it would control 25 percent of the global set-top box market, which could help it revitalize its slumping business. Last year the company issued three profit warnings when it was hit by the severe flooding in Thailand wiping out one of its hard disc suppliers.
According to the Telegraph, Google could take an unusual step and fund the sale of its own unit. The tech giant has an abundance of cash and acquired Motorola for $12.5 billion (£7.77 billion) primarily because of its extensive artillery of patents. The company has little use of the set-top box unit but still needs to secure a good price for the asset so that shareholders remain happy. Bloomberg sources said there is a 50 percent likelihood for a deal by the end of this year.

The FT quoted Tom Dobell, manager of the M&G Recovery Fund, Pace’s biggest shareholder with 15 percent, who gave his opinion on the announcement of a possible acquisition: “We’ve only seen the proposal in its broadest outline, but these people have earned the benefit of the doubt,” he said. “They’ve got every chance to make this a success.” Pace will possibly have to issue a significant number of new shares to finance the transactions or accumulate substantial amounts of debt.

Other likely buyers for Motorola Mobility set-top boxes business include a few private equity firms and US set-top box manufacturers Arris and Technicolor.
Pace’s share price fell 6.4 percent to £1.8540 on Monday before the stock was suspended from trading.
**Pace’s Prospects**
!m[The UK Set-Top Boxes Maker Eyes Acquisition Bigger than Its Market Cap](/uploads/story/1010/thumbs/pic1_inline.png)In its Interim Management Statement the set-top box maker said it expects revenues to be flat in 2012 on the 2011 actuals citing the hard disc supply disruption as the reason. It didn’t forecast any impact on its EBITDA however and expects operating margin for the full year to be greater than 7 percent. Its strong cash flow generation will continue and net debt is expected to fall below $200 million (£124 million) at the end of 2012.
“We continue to make good progress in executing our strategy and becoming a more profitable, cash generative company with a broader commercial opportunity.” said Mike Pulli, chief executive of Pace.

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