Shares of Arris Group and Pace both skyrocketed the day after the two set-top and network access giants announced they would join forces under a stock and cash deal valued at $2.1 billion.
Shares in Arris were up $6.26 (20.51%) to $36.81 each in mid-day trading Thursday, while Pace shares were up more than 36%.
Soon following the deal announcement, Raymond James analyst Simon Leopold raised his target price on Arris from $33 to $45.
“The deal solidifies ARRIS' position in the set top box market, with the combined company controlling a quarter of the global market,” he wrote. Leopold also rated the stock as a “Strong Buy” despite the potential risks of an anti-trust review.
Arris and Pace have not announced the business synergies of the deal, but they do expect 45 cents to 55 cents of earnings per share accretion in the first 12 months after the deal closes sometime in the latter part of 2015.
Leopold believes cost synergies of $110 million to $115 million are achievable, noting that Arris forecast $100 million to $125 when it announced its acquisition of Motorola Home in December 2012, and subsequently beat it ahead of its 12-month target.
“[W]e have little reason to believe that ARRIS will disappoint this time around,” Leopold wrote.
In an interview, Bob Stanzione, Arris’s chairman and CEO, said those cost synergies will be determined later, when it’s permissible to do so.
“We’ve just not gotten started on exactly how we’re going to organize or where we’re going to make changes,” Stanzione said Thursday. “There will be some [changes] obviously, but with the size of the enterprise, I don't expect there to be severe dislocations in any particular place.”
Arris trimmed down its workforce by about 500 employees about two months after it closed its $2.35 billion acquisition of Motorola Home in April 2013.
As for which side initiated the M&A talks – Arris or Pace – Stanzione kept to what he said Wednesday night on a call with reporters and analysts.
“The way this got started was mutual, and it led to what we announced last night,” he said, noting that it was no secret that Pace, led by CEO Mike Pulli, was also interested in buying Motorola Home in 2012.
“I’ve known Mike for years...We’re fierce competitors,” Stanzione said.
More analysis of the deal and the interview with Stanzione will be featured in the April 27 issue of Multichannel News.