Pace plc proposed acquisition of 2Wire, Inc.

Pace widens US reach into telco market through proposed acquisition of 2Wire, Inc.
July 26 2010

Overview

2Wire is a leading provider of advanced residential gateways and associated software and services for the broadband service provider market
2Wire is the number one supplier into the fast growing US telco residential gateway market
Proposed acquisition widens out Pace’s US customer base and opportunity beyond cable and satellite to include the telco market
A logical extension of Pace’s successful strategy, adding another growth market to the Group’s well-established Americas business
Adds further software and gateway expertise that will strengthen the development of Pace’s home entertainment convergence strategy
Strong financial rationale: profitable and cash generative business. Benefit of increased scale and operational synergies
Summary

Pace plc (“Pace” or the “Company”) today announces the proposed acquisition of 2Wire, Inc. (“2Wire”), a leading provider of advanced residential gateways and associated software and services for the broadband service provider market, for cash consideration of $475 million (£308 million) (the “Acquisition”). The acquisition price is inclusive of 2Wire’s balance sheet cash at closing, anticipated to be approximately $55 million (£36 million).

2Wire has established customer relationships in the tier one telco market, in particular with service providers in North America. AT&T has been a customer of 2Wire for 10 years and 2Wire provides software and hardware solutions to enable AT&T’s U-verseSM suite of services that includes multiroom high definition TV, high-speed broadband and telephony. 2Wire is currently owned by a consortium including Alcatel-Lucent, AT&T, Telmex, and Oak Investment Partners.

The Company intends to finance the Acquisition from existing cash resources, together with new bank facilities. The new bank facilities are currently under negotiation and the Acquisition is conditional, inter alia, upon final agreement being reached on the terms of these facilities.

The Pace Board believes the Acquisition is a logical extension of its successful strategy and will enhance its established position in cable and satellite markets in the US with entry into the tier one telco market. At the same time, 2Wire’s software and gateway expertise will support Pace’s development of its home entertainment convergence strategy.

Following the completion of the Acquisition, Pace, already the number one global digital set-top box company, would also become the number one provider of telco residential gateway devices in the US and the number three globally.

The Acquisition is expected to be earnings and cashflow enhancing for the Company in the first full financial year of ownership1.

Neil Gaydon, Chief Executive Officer of Pace, commented:

“This acquisition will strengthen our Americas business, extending Pace’s US market coverage with entry into the tier one telco market. We have built a strong position in the US 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 US operator requirements. 2Wire’s software and gateway expertise will further drive development of our home entertainment convergence strategy. The transaction introduces deep client relationships with important customers including AT&T and further develops our platform to deliver ongoing sustainable growth.”

Pasquale Romano, Chief Executive Officer of 2Wire, added:

“Pace is an excellent strategic fit for the 2Wire business and will enable us to take our products and services to the next level of their development. The combined customer base, engineering capability and product breadth of Pace and 2Wire make this a compelling transaction for our customers, our employees and our end users globally.”

Tim Harden, President – Supply Chain and Fleet Operations, AT&T commented:

“AT&T looks forward to continuing our working relationship with 2Wire under Pace’s ownership.”

A presentation for analysts and investors will be held at 9.30 a.m. (London time) today at the offices of RBS, 250 Bishopsgate, London EC2M 4AA.

The Acquisition is conditional on (amongst other things) 2Wire shareholder approval, certain regulatory consents and finalisation of Pace’s bank financing arrangements. In view of its size relative to the Company, the Acquisition is also conditional upon Pace shareholder approval.

A circular including details of the Acquisition and the bank financing arrangements and containing notice of a General Meeting of the Company (at which a resolution seeking the requisite Pace shareholder approval will be proposed), is expected to be despatched to shareholders within 7 – 8 weeks (the “Circular”).

The transaction is expected to close in the fourth quarter of the current financial year following the satisfaction or waiver of all conditions.

Evercore Partners is acting as Sponsor and sole financial adviser to Pace. RBS Hoare Govett and JPMorgan Cazenove are acting as corporate brokers to Pace.


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