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Pace Tweaks Philips STB Deal

Following renegotiations that got underway late last year, Pace Micro Technology said it will pay about $10 million less than the original sum affixed to its "reverse takeover" of the set-top division of Royal Philips Electronics NV (NYSE: PHG; Amsterdam: PHI).

In a deal announced on Dec. 19, U.K.-based Pace and Philips assigned a maximum £68 million (US $134.5 million) value to the purchase. The revised terms call for Pace to pay roughly £63 million (US $124.7 million). (See Pace Shoots for STB Stardom.)

To comply with U.K. Listing Authority rules concerning deals classified as reverse takeovers, Pace shares had been suspended since the deal was first announced. Trading in Pace shares resumed Tuesday morning following the release of a prospectus detailing the structure of the agreement. At last check today, Pace shares had jumped £5.25 ($10.37), to £96.50 ($190.62) each.

Pace will issue 64.48 million new shares, valued at £59 million ($116.6 million), plus €5 million ($7.8 million) in cash to Philips, which will end up owning about 21 percent of the larger version of Pace. A shareholder vote is set for April 16.

Pace and Philips did not offer much detail about the change in value, other than to say that it was based on revised "trading terms with certain key customers and a number of other matters identified" after the deal was announced in late 2007.

If the deal goes through as planned, it would make Pace the No. 3 provider of set-tops in the world, with more than 8.5 million shipped -- trailing only Thomson S.A. (NYSE: TMS; Euronext Paris: 18453) and Motorola Inc. (NYSE: MOT). Pace also has the rights to use the Philips brand for retail distribution for up to three years.

In discussing the deal late last year, Pace CEO Neil Gaydon noted "there is zero overlap" between Pace's and Philips's respective set-top customers. But "limited overlap" might be a better description. At least two TV service providers -- DirecTV Group Inc. (NYSE: DTV) and UPC Broadband -- use boxes from Philips and Pace, but they rely on the vendors for different classes of set-tops. DirecTV, for example, buys HD-DVR boxes from Pace, but uses Philips for lower-end satellite TV receivers.

Philips's France-based set-top division employs about 335 people. That unit, which makes a family of boxes for satellite, cable, terrestrial, and IPTV service providers, finished 2007 with revenues of £328.3 million (US $648.5 million). Pending any workforce reductions, the combined company will employ about 915 people.

— Jeff Baumgartner, Site Editor, Cable Digital News

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