Arris' Pace acquisition delayed due to DOJ concerns

Arris says the U.S. Department of Justice has requested additional information about "certain optical transmission products," and Arris' proposed $2.1 billion purchase of Pace won't close until at least late December.

Suwanee, Ga.-based Arris, the leading manufacturer of pay-TV set-top boxes and other technology, proposed merging with the No. 2 set-top maker, Yorkshire, England-based Pace, in April.

In an update on its regulatory process released Friday, Arris said it had received regulatory clearances from Germany, Portugal and South Africa. However, it also reminded shareholders that the DOJ could impose "conditions or limitations on Arris' businesses" as a condition for approval.

"While we are disappointed in the potential delay in the timing for completion, we believe that even if conditions are imposed, the transaction remains in the best interests of the shareholders," said Bob Stanzione, Arris chairman and CEO. "Based on our current understanding of the Antitrust Division's areas of continued focus and given the opportunities for the combined business and the potential synergies, we believe that the non-GAAP EPS accretion ranges for the first 12 months following the combination, previously estimated and disclosed by Arris, continue to remain possible."

Merging the world's two largest set-top makers offers insulation from a volatile U.S. pay-TV market, as well as the unpredictable revenue streams of the disparate CPE product cycles, analysts said.

"The North American market is going to be challenging this year, as capex budgets are reduced or are at best flat," said Jeff Heynen, former principal analyst for broadband access and pay-TV for research company Infonetics, in April when the deal was announced. "Arris needed to add in more international exposure as well as exposure beyond the cable space to help reduce the risk of reduced spending among its core North American customer base on the STB side of the business."

He added, "Vendors must be in both sides in order to maintain a more predictable and steady revenue profile, which is what investors like. The acquisition helps Arris expand its STB and CPE product portfolios to achieve that balance and offset any regional or technology declines."

For more:
- read this Arris statement
- read this Wall Street Journal story (sub. req.)
- read this Yorkshire Post story

Related articles:
Arris to acquire Pace for $2.1B
Pace acquisition gives Arris offset to volatile U.S. pay-TV market, analyst says
Arris report says U.S. OTT users declined 2% over the last year

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