Pace Micro Technology plc (“Pace”), a leading digital TV technology company, today announces that it has entered into a conditional agreement to acquire the set-top box and connectivity solutions business (“the Philips STB and CS Business”) of Royal Philips Electronics (“Philips”) (the “Acquisition”). The Philips STB and CS Business employs approximately 335 staff predominantly based in France and is a leading designer and supplier of a range of digital TV products including satellite, cable, terrestrial and IPTV set-top box products. The proposed transaction values the business at up to €95.0 million (£68.0m).
Pace and the Philips STB and CS Business each have over 20 years experience in the set-top box market. The combined business will be a global top three set-top box company(1) with a strong customer and product portfolio.
The Philips STB and CS Business has long-established relationships with a number of key additional payTV operators in multiple geographies, major IPTV customers and a strong international retail business. As part of this transaction, Pace will be entitled to utilise the Philips brand in retail distribution for an agreed range of products for the next three years.
Commenting on the acquisition, Neil Gaydon, Chief Executive Officer of Pace said:
“Based on 2006 performance, this deal will create a company with pro forma revenues of over US$1.0bn, producing approximately 8.5m set top boxes a year. Pace and the Philips STB and CS Business combined technologies, expertise and customer reach will create a leading centre of excellence in the set-top box industry. There is a strong strategic fit from customer, product, geographic, culture and scale perspectives. We have minimal customer overlap and the combined group will have a significantly enhanced technological position.
“The Acquisition brings capabilities in IPTV, terrestrial, retail and connectivity products, which will extend the strong position we have built through relationships with leading payTV operators. We also believe there is potential for improved efficiencies by utilising the operating model and business structure we have built at Pace over the last two years.”
Details of the proposed transaction(2)
The proposed transaction values the business at up to €95.0 million (£68.0m). The consideration for the Acquisition will be satisfied by the issue of 68.0m new Pace shares to Philips at completion and up to a further 1.9m new Pace shares on or shortly after completion together with a further €5m (£3.6m) in cash over 3 years from completion. At completion, Philips will hold approximately 22.5% per cent. of the enlarged share capital of Pace, of which 17% is subject to a one year lock-in from the date of completion. There is also a cash adjustment mechanism based on the net indebtedness and working capital position of the Philips STB and CS Business at completion. The agreement is conditional upon, inter alia, the conclusion of the consultation procedure by the Philips STB and CS Business with its Works Council in relation to the Acquisition, certain anti-trust approvals being obtained and Pace shareholders approving the Acquisition.
The Philips STB and CS Business turnover and EBITDA for the year ended 31 December 2006 were €357.2m and a loss of €39.3m, and for the year ended 31 December 2005 were €473.6m and a profit of €16.4m respectively. Gross assets as at 31 December 2006 were €100.9m. These figures have been extracted from Philips STB and CS Business management accounts, prepared under US GAAP, and when reconciled to Pace’s accounting policies under IFRS may differ from those shown above. The Board of Pace believes that the operational performance of the Philips STB and CS Business has improved significantly during 2007 over 2006, and will benefit further from increased efficiencies after completion. The Pace Board will not alter and the senior management of the Philips STB and CS Business will remain within the enlarged group.
The Acquisition is classified as a ‘reverse takeover under the Listing Rules by virtue of its size and is as a result conditional, inter alia, on the approval of Pace shareholders which will be sought at a General Meeting of Pace expected to take place in March 2008 following posting of the requisite circular to Pace shareholders and publication of the prospectus. As the Acquisition is classified as a ‘reverse takeover, the ordinary shares of Pace will be suspended from trading from the date of this announcement. The shares will re-commence trading on the posting of the circular to shareholders and publication of the prospectus.
Current Trading
Paces last market update on 19 October 2007 stated that Pace was on track to meet the Boards expectations for the shortened financial year for the seven months to 31 December 2007. The Board confirms that Pace continues to perform in line with its expectations for this financial period. In addition, the Board is confident in the outlook and prospects for Pace for the year ending 31 December 2008.
1 According to latest figures from IMS Research on global set-top box shipment data for 2006.
2 Acquisition consideration based on the 10-day average closing price of Paces ordinary shares of 92.10 pence as of 18 December 2007. Foreign exchange rate of £1: €1.40.
3 Gross assets represent total current and non-current assets, as outlined in LR10 (UKLA)
About Pace Micro Technology
Pace Micro Technology plc (pic.l) is a leading technology developer for the global payTV industry. Pace’s main focus is on creating intelligent and innovative products and services that benefit our customers and fuel the development of digital TV. Over the last 25 years, Pace has developed one of the world’s most experienced specialist engineering teams and is now the partner of choice for leading payTV operators across the globe.
Pace’s international headquarters are in Saltaire, West Yorkshire, UK, with further offices in the USA, France, India and Hong Kong. For more information on Pace, please visit www.pacemicro.com.
