Final approval is in.
The High Court of Justice in England and Wales has conditionally approved a proposal for Arris Group Inc. (Nasdaq: ARRS) to acquire set-top competitor Pace plc . The only delay now is a mandatory waiting period imposed by Brazilian authorities, which is scheduled to end on December 22. Arris then expects to complete the takeover of Pace on January 4, and begin trading on the NASDAQ as a new merged company (same ticker symbol: "ARRS") on January 5.
The regulatory nod from the UK follows authorization by US regulators and several other governmental agencies in countries around the world. There was some concern in October when governments in Brazil and Columbia requested further information on the merger; something the US Department of Justice also did in June. However, approvals in Latin America and the US quickly followed, and the go-ahead sign from the UK marks the final hurdle cleared.
With Pace under its belt, Arris will become the dominant customer premises equipment (CPE) provider in the Internet and video service business by far. Based on 2014 earnings reports, the combination of Arris and Pace should rake in about $8 billion in annual revenue, with roughly $6 billion coming from CPE sales. Arris will control nearly a quarter of the total CPE market. Its next competitor, Technicolor (Euronext Paris: TCH; NYSE: TCH), records 14% market share. (See Set-Tops Are Cash Cow in Arris/Pace Deal and How Technicolor Plans to Beat Arris.)
To recap events, 2015 has been something of a difficult year for Arris. The company lost out on a presumed spending surge when the deal for Comcast Corp. (Nasdaq: CMCSA, CMCSK) to acquire Time Warner Cable Inc. (NYSE: TWC) collapsed. Plus, overall telco subscriber losses and the decision by AT&T Inc. (NYSE: T) to focus on the DirecTV platform for video delivery hurt Arris's bottom line.
Next year promises to be rosier. Pace will help Arris in the telco and satellite markets, while service provider spending is expected to pick up around DOCSIS 3.1 deployments and other network capacity upgrades. It appears likely that Charter Communications Inc. 's bid to acquire Time Warner Cable and Bright House Networks will gain approval as well, leading to yet more spending on both network infrastructure and CPE. (See Arris Needs Pace to Help Recoup Telco Losses.)
On the competitive front, long-time rival Cisco (with the assets it acquired from Scientific Atlanta in early 2006) is moving away from the CPE business, but has pledged to work closely with Technicolor now that that company has bought out the Cisco modems, set-tops and gateways. Technicolor will also benefit from the Cisco partnership through collaborative efforts to sell new software and cloud-based applications.
According to Synergy Research Group, the aggregated revenues of Arris and Pace put those companies as a merged entity 17% ahead of Cisco in the video hardware space now that Cisco has divested its CPE business. Cisco, however, owns more than 20% of the video software market, while second-place Nagra hovers at around 11%, and third-place Arris controls roughly 9%.
— Mari Silbey, Senior Editor, Cable/Video, Light Reading