Numis says Pace takeover unlikely to fail, upgrades to 'hold'

A £1.4bn takeover offer from US group Arris for Pace has prompted Numis Securities to remove its 'sell' rating on UK set-top box maker.

The broker lifted its stance to 'hold' and hiked its target price from 280p to 443p, saying it sees little chance of the deal falling through.

Numis said the takeover "demonstrate[s] that under-performing business (like AZ Electronics, Wolfson) or businesses at risk of under-performance (like Pace) do seem to find it reasonably easy to find trade buyers in an era of low costs of capital".

The broker said that a key rationale to the deal was probably to ease competitive pressures. Comcast and AT&T are major customers to both Pace and Arris and competition between the two was pressuring margins, it said.

Meanwhile, the deal is also being structured as a tax inversion so will have material tax benefits for Arris.

"The commercial and financial rationale of deal make good sense, with the only hurdle being gaining antitrust clearance, which while likely is not certain," Numis said.

"As a first stab, we estimate the chance of the deal failing at 20%, but this may become clearer over coming weeks. We upgrade our TP to 443p, which is a blend of a 80% probability of the deal completing at 484p value plus a 20% probability of it failing which would push us back to our 280p target price."

Pace shares rocketed on news of the deal and were up 35.2% at 448.9p by 11:49.