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May 31, 2011 8:41 pm
Talks to appoint Allan Leighton, one of the UK’s best-known businessmen, as chairman of Pace, were well under way in May when the set-top box maker announced a profit warning that led to a 40 per cent collapse of its share price.
The appointment was confirmed on Tuesday, cheering investors whose faith in the Yorkshire-based business has become strained in recent months.
Mr Leighton has previously headed supermarket chain Asda and served as chairman of the Royal Mail. He has promised to conduct a three-month strategic review of the business, and to rebuild relations with City investors following two profit warnings this year.
“Communication with the City is something we have to redress,” Mr Leighton said. “I am trying to get the markets to understand UK technology stocks in a different way. We have some of the best engineers in the world working on this stuff.”
Shares in Pace, which lost 40 per cent of their value after a profits warning in May, continued a slow recovery in response to the news, rising 2.9p to 117.8p.
Jonathan Imlah, Collins Stewart analyst, said: “He has obviously got a lot of experience of turnaround situations. It is good that there is a new head coming in, who is a strong personality.”
There was some concern, however, that Mr Leighton would have little time for Pace, given his other commitments.
He also has non-executive positions at a number of other companies, including Selfridges and British Sky Broadcasting.
Industry observers questioned whether there would be a conflict of interest with his non-executive role at BSkyB, which owns Amstrad, a rival set-top box maker.
Mr Leighton said that Amstrad was rarely discussed at BSkyB meetings and that if it did come up, he would excuse himself from any discussions.
Mr Leighton will invest £200,000 of his own money in Pace shares, which the company will match on a two-for-one basis after three years.
He will also receive more than £1.1m worth of share options if in four years’ time Pace shares have reached 190p.
Mr Leighton said he had has no immediate plans to replace Neil Gaydon, Pace chief executive, despite calls from investors for him to go after the profit warnings. “I don’t tend to rush into changing management for the sake of it. Neil has done a good job over the last couple of years,” he said.
Analysts hope that Mr Leighton does not make radical changes to Pace’s business. Despite a few recent mistakes, most see that the underlying business is sound. “It is somewhat disconcerting to find that Mr Leighton wishes to start with a strategic review. We hope that he checks the bathwater for babies first,” said Ian Robertson, analyst at Seymour Pierce.
The most recent profit warning was due in part to Pace’s having too many components, while European customers ordered fewer units than expected.
“That is just part of the problem of being a hardware company, you are always going to have occasional hits like that,” said Mr Robertson. “Even the best of them, whether it is a Samsung or an Apple, will have the occasional knock.”
A bigger strategic question is whether internet-based television will erode Pace’s market for set-top boxes. Pace is trying to ensure that it does not get left behind by incorporating the internet into some boxes.
Mr Leighton says this is the part of the Pace challenge he relishes the most.
“I like to take on things that are a bit difficult,” he said. “That is the part that is interesting – to be in an industry that is changing fundamentally,”
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