December 10, 2012 8:08 pm

Pace bids for Google set-top business

Pace, the UK maker of TV set-top boxes, has stepped forward as the first public bidder for Google’s set-top box business, setting the stage for a deal that could far exceed the British company’s own stock market value.

The news comes as Google enters the final stages of an auction to sell the set-top box manufacturing operation it acquired when it bought Motorola Mobility , the US mobile communications group, this year.

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One of the names that long dominated the set-top box world, the Motorola Home business has attracted interest from a number of bidders, according to a person familiar with the discussions.

The auction could raise $1bn-$2.5bn, this person said. Were bids to reach the high end of that range, it would dwarf Pace’s own stock market value, which stood at less than £600m on Monday. The scale of any deal would make it a reverse takeover under UK law, Pace said, leading it to suspend trading of its shares. Pace called its offer an “indicative, non-binding, proposal”.

“It’s a very bold step towards the US market but I’m not sure they needed it,” said Alexandre Faure, analyst at Exane BNP Paribas.

“Maybe it’s a defensive move and they want to make sure nobody else gains Motorola’s scale. If it was to fall into say, Technicolor’s hands or Cisco’s hands, Pace would suffer from a competitive angle.”

The set-top box business has become increasingly crowded with the entry of Samsung and other operators, adding to pressure on Pace to boost its scale to compete.

Tom Dobell, manager of the M&G Recovery Fund, Pace’s biggest shareholder with 15 per cent, threw his weight behind the company’s new management.

“We’ve only seen the proposal in its broadest outline, but these people have earned the benefit of the doubt,” he said. “They’ve got every chance to make this a success.”

Google’s decision to sell the set-top box business has come despite its own deeper moves into the internet-connected TV business and recent experiments with manufacturing.

It continues to have a stake in bringing the internet to TVs through initiatives such as the Google TV service and an experimental high-speed broadband network it is building in Kansas City. That has led to speculation that the internet company may seek to keep a stake in the Motorola set-top box division after a sale.

For Pace, an acquisition would cap a rebound after a troubled period. The company issued a string of profit warnings in 2011 after flooding in Thailand damaged the factories of its two biggest suppliers. Allan Leighton, who took over as chairman last year, proceeded to overhaul senior management, replacing the chief executive and eliminating a number of roles.

After tumbling in 2011, Pace’s share price has more than doubled this year as investors gained confidence that the company was back on track. Shares fell 3.3 per cent to 185.4p on Monday before being suspended.

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