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Pace To Acquire 2Wire For $475 Million

British set-top vendor Pace plc plans to acquire 2Wire, a key supplier of home gateways for AT&T's U-verse and other telcos, for $475 million in cash.
2Wire is currently owned by a consortium of strategic and financial investors that includes Alcatel-Lucent, AT&T, Telmex, Oak Investment Partners, Meritech Capital Partners and Technology Crossover Ventures.
"This acquisition will strengthen our Americas business, extending Pace's U.S. market coverage with entry into the tier-one telco market," Pace CEO Neil Gaydon said in a statement. "We have built a strong position in the U.S. with cable and satellite operators and 2Wire, with its expertise in the broadband residential gateway market, will enable us to address a full range of U.S. operator requirements."
Pace's U.S. customers include Comcast, Time Warner Cable, Bright House Networks and Bresnan Communications. The Saltaire, U.K.-based company shipped 17.2 million set-tops to more than 100 pay-TV operators last year, which made it the largest global set-top box supplier, according to IMS Research.
Following the completion of the acquisition, Pace claimed it also would become the No. 1 provider of telco residential gateway devices in the U.S. and the third-biggest globally.
Previous Pace acquisitions include the Royal Philips Electronics' set-top box and connectivity solutions business in 2008.
Customers of 2Wire include AT&T -- which uses the vendor's equipment in its U-verse network  -- as well as Telmex, BT, CenturyLink, Bell Canada and Blockbuster.

AT&T president of supply chain and fleet operations Tim Harden commented, "AT&T looks forward to continuing our working relationship with 2Wire under Pace's ownership."

Pace's proposed acquisition of 2Wire is expected to close in the fourth quarter of 2010, pending approval by both companies' shareholders and regulatory approvals.

Evercore Partners are acting as financial advisor and Gibson Dunn & Crutcher LLP and Travers Smith LLP are acting as legal counsel to Pace in connection with the transaction. Barclays Capital are acting as financial advisor and Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP and Taylor Wessing LLP are acting as legal counsel to 2Wire.

The $475 million purchase price is inclusive of 2Wire's balance sheet cash at closing, anticipated to be approximately $55 million. Both Pace and 2Wire have agreed to pay a breakup fee of $8.0 million if their respective shareholders do not approve the deal.

2Wire, based in San Jose, Calif., was founded in 1998 and launched its first residential gateway product in 2000. The company has approximately 1,600 employees globally, including 550 in R&D, sales and administration, 450 in customer care and 600 agency employees.

As of June 30, 2010, 2Wire had shipped over 31 million managed gateways and is the No.1 provider of DSL gateway devices in the Americas and the No. 1 supplier worldwide of next-generation VDSL gateway devices.

For the 12 months ended 31 December 2009, 2Wire reported sales of $667.4 million (£426.2 million), gross profits of $141.8 million (£90.5 million) and profit before tax of $28.9 million (£18.4 million). As at 31 December 2009, 2Wire had gross assets of $828.6m (£510.6 million). This financial information has been extracted directly from the audited annual results of 2Wire prepared in accordance with US GAAP.