ARRIS Group (ARRS) to Acquire Pace plc in $2.1B Deal

ARRIS Group (NASDAQ: ARRS) and Pace plc jointly announced that they have agreed that ARRIS will acquire Pace for aggregate stock and cash consideration of US$2.1 billion (£1.4 billion). The acquisition is expected to be accretive to ARRIS Non-GAAP earnings per share in the first 12 months following the acquisition.

Key benefits of the transaction:

• Accelerates growth strategy
  • ~US$8B Pro forma revenues
  • ~8,500 combined employees, globally based
  • Provides large scale entry into satellite segment
  • Enhances international presence
  • Expands product portfolio across equipment, software, and services
• Financially compelling
  • US$0.45 to US$0.55 accretive in the first 12 months after close to Non-GAAP EPS
  • Reduces Non-GAAP tax rate to approximately 26% - 28%
  • Significant synergy opportunity
  • Maintains capital structure flexibility

Transaction details:The transaction will result in the formation of New ARRIS, which will be incorporated in the U.K., and its operational and worldwide headquarters will be in Suwanee, GA USA. New ARRIS is expected to be listed on the NASDAQ stock exchange under the ticker ARRS. In connection with the formation of New ARRIS each current share of ARRIS will be exchanged for one share in New ARRIS.

Under the agreed upon terms, Pace shareholders will receive £1.325 of cash and a fixed exchange ratio of 0.1455 New ARRIS shares for each Pace share, reflecting aggregate consideration as of April 21, 2015 of £4.265 per share, representing a 28% premium to the Pace closing share price as of April 21, 2015. The cash portion will be funded through a combination of cash and debt. ARRIS has secured a fully committed facility from Bank of America Merrill Lynch to meet the funding requirements.

Pace shareholders will receive approximately 48.2 million shares of New ARRIS in aggregate. On a pro forma basis current ARRIS shareholders will hold ~76% of New ARRIS and Pace shareholders will hold ~24% of New ARRIS. The transaction is expected to be taxable, for U.S. federal income tax purposes, to the shareholders of ARRIS.

The proposed transaction has been approved by the respective Boards of Directors of ARRIS and Pace and is expected to close in late 2015 after the satisfaction of customary closing conditions, including ARRIS and Pace shareholder approval and regulatory approvals.

ARRIS Chairman and CEO, Bob Stanzione will be New ARRIS Chairman and CEO and the then-current ARRIS Board of Directors will serve as the New ARRIS Board of Directors.

"This transaction is another example of ARRIS's ongoing strategy of investing in the right opportunities to position our company for growth. Adding Pace's talent, products and diverse customer base will provide ARRIS with a large scale entry into the satellite segment, broaden our portfolio and expand our global presence. We expect this merger will enable ARRIS to increase its speed of innovation. We believe this is a tremendous opportunity for ARRIS and our customers, employees, shareholders and partners around the world as we collaborate to invent the future," said Bob Stanzione. "We look forward to working with the talented and accomplished team at Pace."

"Pace plc is a great company with a strong track record of pioneering innovation and excellent customer service. Through a combination of organic development and acquisitions, Pace has grown to be a leading technology solutions provider to the PayTV and Broadband industries serving cable, satellite and telco customers across the globe. Over the last three years, Mike Pulli and the wider Pace team have successfully executed against our strategic plan to develop Pace into a more distinctive, profitable and cash generative company, creating significant value for shareholders.

"The Pace Directors believe that ARRIS's offer recognises this value and also gives our shareholders the opportunity to share in the future success of the combined group. While we believe that Pace is strongly positioned to continue to execute its strategy in the medium and long term, we believe that the combination of the complementary ARRIS and Pace businesses will create a platform for future growth above and beyond our standalone potential. We believe this is a great fit for both companies, our employees, customers and trading partners," said Allan Leighton, Chairman of Pace.

Evercore is acting as lead financial advisor; Troutman Sanders is acting as lead US legal counsel and Herbert Smith Freehills is acting as lead UK legal counsel to ARRIS on this transaction. Bank of America Merrill Lynch is also advising ARRIS. J.P. Morgan Cazenove is acting as lead financial advisor and Travers Smith is acting as lead legal counsel to Pace on this transaction.

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