Arris Group Inc. soared as much as 22 percent to the highest level since 2000 after agreeing to buy British set-top box maker Pace Plc for about $2.1 billion and incorporate in the U.K. in a deal designed to save on taxes.
The acquisition will combine two of the biggest equipment makers for telecommunications and cable companies in the U.S. and give Arris access to the satellite market. It will also reduce Arris’s non-GAAP tax rate to as low as 26 percent, the company said in a statement.
The transaction is the second so-called tax inversion deal announced by a U.S. company this year, following Cyberonics Inc.’s acquisition of Milan-based Sorin SpA in February. The practice drew political scrutiny last year, and the U.S. Treasury in September took steps to make it less enticing.
“We’re not expecting any issues,” Arris Chief Executive Officer Bob Stanzione said on a conference call. The deal fits within the rules for an inversion, he said, “and we’ll still be a big taxpayer.”
Arris shares jumped 20 percent to $36.71 at 12:06 p.m. New York time, after reaching $37.39, the highest intraday price since August 2000. Through Wednesday, the stock had already gained 14 percent in 12 months.
Pace’s stock rose 35 percent to 447 pence, above the implied price of the cash and share offer. Investors in Pace, one of Britain’s few global technology companies, will get 1.325 pounds ($2) of cash and 0.1455 shares in the new company for each of their shares.
Arris is buying Pace while the U.S. pay-TV industry is in the midst of consolidation, with AT&T Inc.’s agreement to acquire DirecTV and Comcast Corp.’s planned purchase of Time Warner Cable Inc. -- a deal now in limbo because of regulatory concerns, but whose potential collapse could trigger more mergers among smaller cable businesses.
“With the structural challenges in that industry, there’s pressure on margins from some very big customers,” said Nick James, an analyst with Numis Securities. “One of the best ways to mitigate that is to consolidate.”
Together, Arris and Pace provide 70 percent to 80 percent of the U.S. cable industry’s set-top boxes, which may raise antitrust concerns, according to James.
Arris said it doesn’t expect antitrust issues. The combined business will have 8,500 employees and keep operational headquarters in Suwanee, Georgia.
The U.K. technology industry has become attractive to investors because of the weaker pound, said Eoin Lambe, an analyst for Liberum. Other U.K. targets may be semiconductor developer Imagination Technologies Group Plc and telecommunications network testing company Spirent Communications Plc, he said. Neither company responded to a request for comment.
Arris had been looking for a way to enter the satellite market for several years, Stanzione said.
“Satellite was an area we were honing in on,” he said. “That is an area of intense interest right now because of other deals that are happening in the marketplace.”