Transactions

Arris-Pace Deal Hits Speed Bump

DoJ Antitrust Unit Eyes Optical Transmission Business 10/17/2015 1:15 PM Eastern

Arris is confident that it will close its proposed $2.1 billion merger with U.K.-based Pace plc, but now believes it won’t be able to seal the deal until “late December or the first quarter of 2016” amid additional requests from the U.S. Department of Justice and other regulatory bodies that might create conditions that would require the companies to divest part of their business.

 

Arris and Pace have long expected to wrap up the deal by year end, but Arris said Friday (October 16) that the companies have received requests for additional information from the Antitrust Division of the U.S. DoJ as well as regulators in Brazil and Colombia. The DoJ put in its original request for more data from Arris and Pace in June. 

 

Arris said the Antitrust Division’s current focus “appears to be on certain optical transmission products of Arris and Pace,” adding that it it’s possible, as a condition to the approvals, that “the governmental agencies may impose requirements, conditions or limitations on ARRIS business after the completion of the transaction which may include a divestiture.”

 

Such a condition or requirement, Arris said, “could further delay the completion of the transaction could further delay the completion of the transaction or reduce the anticipated benefits of the combination.”

 

While the proposed merger would create a set-top behemoth that would enable Arris to expand much deeper into the satellite TV market and into new international arenas, the deal would also create a larger provider of access network gear.

 

Pace secured a stronger play in the optical transmission and cable access network market in 2013 when it acquired Aurora Networks, which had earlier picked up a cable access unit of Harmonic Inc. that made optical transmitters, amplifiers, receivers and nodes.

 

Arris was not overly concerned that the current focus on the pending transaction, which intends to create a “New Arris” to be incorporated in the U.K. but operate its worldwide headquarters in Suwanee, Ga.  The merged company would have pro forma revenue of roughly  $8 billion and 8,500 employees. According to an 8-K filing with the SEC, Arris is subject to a break-up fee of up to $20 million.

 

"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," Bob Stanzione, Arris chairman and CEO, said in a statement. “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."

 

Regulators in Portugal, Germany and South Africa have already cleared the agreement.

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