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Cable Technology Feature Article

July 26, 2010

Pace to Buy 2Wire for $475 Million

By Paula Bernier, Executive Editor, IP Communications Magazines

Pace plans to buy 2Wire Inc. in a $475 million deal, as noted on TMCnet earlier today.

Both are players in the residential gateway space, with 2Wire claiming the No. 1 position in this category relative to the U.S. telco arena.

2Wire, which was founded in 1998 by former members of PictureTel and Polycom, serves such top-tier customers as AT&T, Bell Canada, BT, EMBARQ, SingTel (News - Alert) and Telmex. The supplier is currently owned by a consortium of AT&T, Alcatel-Lucent, Oak Investment Partners and Telmex.

At the Consumer Electronics Show back in 2004, SBC (which later bought AT&T (News - Alert) and adopted the name of the iconic brand) announced plans to form a joint venture with 2Wire to deliver a home entertainment service that integrates satellite TV programming, digital video recording, video on demand, and Internet content including photos and music. 2Wire built the set-top box/home gateway devices that pulled live video services from EchoStar’s DISH Network as well as on-demand video, music and Internet content via DSL as part of the effort.

With such important customers, Pace says 2Wire will enable it to strengthen its position in the Americas and enter the tier 1 telco market.

“We have built a strong position in the U.S. 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 U.S. operator requirements,” says Pace CEO Neil Gaydon. “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.”

A Reuters report on the deal indicates that a JP Morgan (News - Alert) analyst expects it to add 12 percent to Pace’s forecast earnings in 2011 and 18 percent in 2012.

The deal will be financed with Pace’s existing cash resources, together with new bank facilities.

Edited by Erin Harrison