Set-top box makerPace(LSE: PIC) is surging today afterARRIS Group offered to buy the company for $2.1bn. Paces shares have jumped by more than a third to 440p at time of writing, valuing the company at just under $2.1bn.
According to the terms of the deal,Pace shareholders will receive 133pin cash and 0.1455 new Arris shares for each share held equal to around 427p per share based on yesterdays prices.
The deal will see Arris and Pace merge to create a new company that will beincorporated in the UK, a move thats designed to lower the enlarged groups tax bill.
Indeed, after the deal the enlarged Arriss corporate tax rate will fall to around 27%, from 37% as reported during 2014.
Great deal
In many ways, this deal is good news for the shareholders of both Arris and Pace. The deal comes at a time when the demand for set-top boxes is really starting to take off, as consumers switch to what have been branded over-the-top services. These services allow users to stream video through ahigh-speed broadband connection.
Arris producestelecommunications equipment that enables companies to transmit high-speed data, video and telephony systems. So it makes perfect sense for the company to combine with Pace, a producer of set-top boxes.
Whats more,Arris largest customers includeComcast,Time WarnerCableandAT&T.These are some of the largest telecoms groups in the world.
And when the deal is completed, the combined Pace-Arris groupwill be a force to be reckoned with. Figures show that the enlarged group will have 8,500 employees globally, and is on track to report $8bn per annum in sales.
Further, according to Arriss figures, the deal will boost Arriss earnings per share by as much as 25% in the first 12 months after close. Pace shareholders will own 24% of the enlarged company when the deal is completed.
Stay or go?
So, should Pace shareholders accept Arriss offer of shares and cash, or should they cut and run?
Well, the enlarged Arris will be one of the worlds largest providers of equipment forover-the-top services, a market thats growing rapidly and showing no signs of slowing down. Wall Street analysts expect Arris earnings per share to expand by around 40% this year before taking into account any synergiesfrom the deal with Pace.
And with that in mind, it makes sense for investors to hold on to their Arris shares offered as part of the deal: Arris earnings are set to explode over the next few years.
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Rupert Hargreaves has no position in any shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.