News that TV set-top box maker Pace (PIC) has agreed a $2.1bn (£1.4bn) takeover by Arris sent shares in our value tip of the year up by over a third. The deal, which will see Pace’s shareholders receive 132.5p in cash and 0.1455 Arris shares – a total value of 426.5p when the bid was announced – marks part of the US networking equipment maker's push to enter the satellite-TV market and expand its global presence.
Importantly, it will also slash the US group’s tax rate to about 26 to 28 per cent – the US federal corporate income tax rate is 35 per cent. That news was enough to send shares in Arris up over a fifth to $37.2, making the deal worth 492p per Pace share.
So-called inversion deals soared in popularity last year among some of America's largest firms, prompting the Obama administration to tighten the rules to make it more difficult for companies to escape US corporation tax through takeovers. Washington's backlash caused the pace of inversions to slow and for US pharma group Abbvie’s (ABBV) takeover of its UK rival Shire (SHP) to fall apart.
However, under current US law on tax inversions, foreign companies’ shareholders must own more than 20 per cent of the combined company. That explains the rationale of this stock and cash consideration. If everything goes to plan, the deal is expected to close in late 2015.