By Amrutha Gayathri
(Reuters) - Network gear maker Arris Group Inc said it would buy British set-top box maker Pace Plc (LONDON:PIC) in a $2.1 billion (1.40 billion pound) cash-and-stock deal to expand its operations outside North America.
The deal, which involves the creation of a new company that will be incorporated in the UK, will help Arris reduce corporate taxes.
Arris said the deal will reduce its non-GAAP tax rate to about 26-28 percent. The company's tax rate was 36.8 percent in 2014.
The deal comes at a time when the traditional video service industry is being shaken up by "over-the-top" services, which allow consumers to stream videos through a high-speed broadband connection.
Both Arris and Pace make products that are used by telecommunications carriers to deliver these services, which are becoming increasingly popular as viewers shift away from cable TV services.
Arris Chief Executive Bob Stanzione said the combination would be able to better compete in an increasingly competitive market.
"Over the past several months, there have been a number of new entrants both on the side of new services that are being offered over-the-top, as well as new devices that are used at homes in order to translate those services to video streams to serve television sets," Stanzione said on a conference call.
Pace shareholders will receive 1.325 pounds ($2) in cash and 0.1455 new Arris shares for each share held, or 4.265 pound per share, the companies said on Wednesday.
The deal represents a 28 percent premium to Pace's Tuesday close. Arris shares jumped about 25 percent to $38.02 in extended trading. Pace closed at 330.9 pence on the London Stock Exchange.
Arris' largest customers include Comcast Corp (NASDAQ:CMCSA), Time Warner Cable Inc (NYSE:TWC) and AT&T Inc (NYSE:T), while competitors include TiVo (NASDAQ:TIVO) Inc and Cisco Systems Inc (NASDAQ:CSCO).
Arris will fund the cash portion of the deal through a combination of cash and debt. The company said it had secured a loan from Bank of America (NYSE:BAC) Merrill Lynch to fund the transaction.
On a pro forma basis, current Arris shareholders will hold about 76 percent shares in the combined company, with Pace shareholders holding the rest.
Evercore and BofA Merrill Lynch are Arris' financial advisers for the deal, Troutman Sanders is its lead U.S. legal counsel and Herbert Smith Freehills is its lead UK legal counsel.
J.P. Morgan Cazenove is Pace's lead financial adviser and Travers Smith is its lead legal counsel.