Pace Makes $475M Move on 2Wire

Set-top box vendor Pace plc is to buy home gateway specialist 2Wire Inc. for US$475 million in an effort to break into Tier 1 telecom operator accounts in North America, and so add to its existing business with satellite and cable operators. (See Pace to Buy 2Wire.)

Pace cited 2Wire's software and gateway expertise, "deep client relationships with important customers," including AT&T Inc. (NYSE: T), and 2Wire's ability to help Pace "deliver ongoing sustainable growth," as key reasons for the acquisition. (See AT&T Hits Homezone and AT&T Selects 2Wire.)

2Wire will give Pace, not only the North American telco relationships it wants, but key international business, too, in a home gateway market that is growing and of increasing importance to major service providers. 2Wire has shipped more than 30 million gateways to customers including BCE Inc. (Bell Canada) (NYSE/Toronto: BCE), BT Group plc (NYSE: BT; London: BTA), CenturyLink Inc. (NYSE: CTL) (set to merge with Qwest), Teléfonos de México (Telmex) , and Singapore Telecommunications Ltd. (SingTel) (OTC: SGTJY). (See Gateway to the Ultimate Prize: Customer Loyalty, Qwest, CenturyLink Plan $22.4B Marriage, 2Wire Cares for Bell Canada, CES: 2Wire Brings Apps Home, 2Wire Unveils New Gateway, 2Wire's BT Coup, Bell Canada Picks 2Wire, Telstra, 2Wire Team, and 2Wire Wins in Brazil.)

The move has the backing of AT&T, which is one of 2Wire's current owners, along with Telmex, Alcatel-Lucent (NYSE: ALU), Oak Investment Partners , Meritech Capital Partners , and Technology Crossover Ventures .

"AT&T looks forward to continuing our working relationship with 2Wire under Pace's ownership," stated the carrier's president of Supply Chain and Fleet Operations, Tim Harden, in a prepared statement.

2Wire, a Light Reading Top Picks winner in the Fixed Access category, is a long-time supplier of home gateways for AT&T's U-verse rollout, and is believed to be bidding with partners Ubiquisys Ltd. and Ericsson AB (Nasdaq: ERIC) to meet AT&T's enterprise femtocell requirements. (See Rumor: Giants Crash AT&T Femto Party and Light Reading Reveals Its 2009 Top Picks.)

Pace says the deal, which still requires regulatory and shareholder approval, is set to be completed during the fourth quarter of this year.

If the acquisition is completed, Pace believes it will become the leading provider of home gateways in the US and the No. 3 player globally, in addition to being the No. 1 global digital set-top box vendor. (See Pace Claims STB Top Spot.)

News of the proposed acquisition came as Pace announced a 21 percent increase in first-half revenues to £635.2 million ($984 million), and a 46 percent increase in pre-tax profits to £45.4 million ($70 million).

Pace's share price was up by 18.8 pence, more than 10 percent, to 206.3 pence ($3.20) on the London Stock Exchange Monday.

— Ray Le Maistre, International Managing Editor, Light Reading