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Pace needs to dance swiftly to win Motorola

By PETER WHITE

Published: 14 December, 2012

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For the full version of this story, request this week's copy of our paid weekly service, Faultline, at www.rethinkresearch.biz/faultline or email sales@rethinkresearch.biz

The UK's Pace is the largest set top maker in the world, but valued by UK stock market standards it has too low a market capitalization, and too little cash to make a sensible bid for the business of Motorola Home, and yet it has.

We can see that Arris, a purely cable oriented equipment vendor, with far less prowess in set tops, is better placed financially, and culturally to make such a bid. However Pace has curried favor with US MSOs and they might well support a Pace bid over one from Arris. They are also wary of anyone ever having the control in this market that Motorola once yielded with its conditional access lock in, and would rather the spoils were shared.

Google is said to want to get $2.4 billion for Motorola Home, but none of these companies would ever have that kind of cash. Cisco could pay it in an instant, but then it would only double up on what it sees as a problem that Scientific Atlanta gave it, when it acquired the US number 2 set top maker all those years ago. It has had to pay out $5 billion to buy a truly adaptable, software based pay TV leader in NDS, to remedy that deal.

Our analysis this week in Faultline argues that it will be the most creative bid that will win the prize, taking in perhaps more than one buyer, and splitting the assets, going via private equity ownership, with issues such as Google TV and the TiVo legal actions against Motorola, being as significant as the price paid.

Whatever happens this will change the global set top industry, creating an overnight and unassailable set top leader, with some element of loyalty established towards Google TV, in a deal that must sweep away the threat of legal actions from TiVo, and at least notionally put some cash back in the Google coffers. That's quite a deal and we see Pace as the company able to grasp these realities and in the process turn itself from a staid British company, into a US superstar.

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