DoJ Stalls Arris Plans to Purchase Pace

Arris has hit its first speed bump on the road to acquiring set-top rival Pace.

In a press announcement released after hours on Monday, Arris Group Inc. (Nasdaq: ARRS) said that both companies have received requests for further information related to Arris's proposed acquisition of Pace plc for $2.1 billion. Coming from the Department of Justice (DoJ), the type of request is called a "Second Request," and it has the net effect of extending the time until the Arris/Pace transaction can be approved. Under a process put in place with the Hart-Scott-Rodino Antitrust Improvements Act of 1976, the companies involved now have to wait an additional 30 days after they have complied with the new request before the deal -- assuming it meets all other regulatory and shareholder requirements -- can be completed. (See Arris to Acquire Pace for $2.1B.)

Both Arris and Pace intend to respond as quickly as possible to the new DoJ requests, and still "anticipate that the transaction will close in late 2015."

The cable market is still a bit wary of mega-mergers after Comcast Corp. (Nasdaq: CMCSA, CMCSK)'s failed attempt to acquire Time Warner Cable Inc. (NYSE: TWC). But by all accounts, regulators are getting close to approving AT&T Inc. (NYSE: T)'s acquisition of DirecTV Group Inc. (NYSE: DTV), and Charter Communications Inc. 's new deal to buy up TWC also has a rosier outlook than the earlier Comcast bid.

According to Synergy Research, the combination of Arris and Pace would put the new company in control of just under a third of the global set-top market. That's more than three times the market share of Technicolor (Euronext Paris: TCH; NYSE: TCH), which is the next-biggest competitor, according to Synergy. Cisco, meanwhile, has seen its market share drop below 10% in the set-top space. However, Cisco still leads the overall video infrastructure market with 18% share. Together, Arris and Pace have 17% of the total video infrastructure market.

For Arris, the deal to buy Pace is about far more than set-tops. It's also about blending cloud-based software technologies and beefing up on optical network equipment. However, it's likely that the government is most concerned about Arris's set-top portfolio.

Against the argument that it would control too much of the set-top market, Arris would likely point to the wealth of new Internet-connected devices that allow consumers to watch television on new screens. As Arris CEO Bob Stanzione put it last month, "We don't just consider set-top boxes, and the set-top box market to be what [it] is traditionally thought of. You've seen Apple come in with products, Amazon, Roku and it goes on and on. We just see a virtual onslaught of new ideas and new services, and I think there are great opportunities for integrating these things and being a significant player in the evolution." (See Arris & Pace: More Than Just a Set-Top Deal.)

A request for further details from Arris on what new information the DoJ is now seeking was not answered by press time. It's unlikely those details will be shared.

— Mari Silbey, Senior Editor, Cable/Video, Light Reading