Pace is making a bold bid to buy the Motorola Home set-box and associated software business from Google. Based in Yorkshire, Pace is already the largest supplier of set-top boxes in the world. In spite of its problems, the company has been gaining ground in the United States, where Scientific Atlanta and Motorola previously dominated the market, before Cisco and Google respectively acquired them.
Google bought the business as part of Motorola Mobility for $12.5 billion in a deal that closed in May 2012. This was generally seen as a move to gain its patent portfolio to help protect its investment in the Android operating system.
Although Google has been involved in producing consumer products and clearly has ambitions in television, some questioned why it needed a set-top box business. Google recently invited offers for the business, expected to be in the range of $1.5 to $2.5 billion.
With a market cap of less than £600, Pace would appear to need help to buy the Motorola Home operation. Yet the risk of it falling into other hands could be more of a concern.
Pace has confirmed that it has submitted an indicative, non-binding proposal to Google to acquire the Motorola Home business. The company says that discussions are “at a preliminary stage”.
Given the size of the Motorola business, the potential acquisition would be classified as a reverse takeover. Trading in Pace shares was suspended pending further news on the potential acquisition.
Pace has had a tough time over the years, its rather unpredictable performance providing a rough ride for investors.
Chairman Allan Leighton, the former chief executive of Asda, was appointed in June 2001 to help turn the company around.
More recently, however, BT dropped Pace as a supplier of boxes for its YouView service, turning instead to Humax. The company shrugged off the news, telling the city tersely: “any outcome of the commercial and technical discussions with BT on the YouView contract is of no material impact to the company’s earnings in this or future years”. The company has made no further reference to the matter to shareholders.
Pace said it is seeing strong demand in the United States for its Media Server products, including the XG1 for the new Comcast X1 service and the DIRECTV Genie Advanced digital video recorder. The company also has a partnership with TiVo and is porting its software to set-top boxes and gateways.
TiVo is currently pursuing Motorola in patent litigation that has so far proved lucrative in terms of settlements with service providers. Settling the suit one way or another would seem a necessary part of any deal. Simply buying TiVo would be a potential solution. Doing a deal with Pace could be another.
It has been suggested that Google could even fund the sale of the Motorola Home unit, and presumably gain a sympathetic and substantially larger supplier.
In the longer term, the role of the traditional set-top box and digital video recorder must come into question, as its functions become embedded in other screens and services move deeper into the network.