Britain's Pace Bids for Google’s Set-Top Box Unit

Source: Motorola

British TV decodermaker Pace said on Monday that it had made anearly-stage proposal to Internet group Google toacquire its set-top TV box maker Motorola Home.

"Discussions with Google are currently at a preliminarystage and there is no certainty as to whether any agreementregarding any transaction will be reached," Pace said in astatement.

The offer is one of several bids for the unit, includingfrom private equity firms, that Google received on Friday,according to a person familiar with the situation.

Google acquired the set-top box maker as part of its $12.5billion acquisition in May of Motorola Mobility, which waslargely motivated by a desire to snap up its large portfolio ofcommunications patents.

Since acquiring Motorola, Google has moved to revamp thecompany's loss-making mobile phone business, while appearingless interested in the set-top business.

"It's a fine business, it's just not core to Google," saidPivotal Research Group analyst Brian Wieser.

Motorola and Cisco Systems's Scientific Atlantadominate the U.S. market for cable television set-top boxes andfor the back-end infrastructure that manages the transmission ofvideo signals to the boxes, said Wieser.

He estimated that the Motorola's home business could fetch"in the billions" of dollars, depending on how the deal isstructured, such as whether patents are included.

Arris Group, a cable equipment maker, also made a bid forthe business, according to a report by Bloomberg. Arris Groupand Google declined to comment.

Google, the world's No.1 Web search engine, has increasinglyexpanded into the hardware business as consumers turn from theirpersonal computers to smartphones and other gadgets to accessthe Internet.

Google worked closely with companies such as Asus and LGElectronics to develop Nexus-branded smartphones and tabletsthat Google sells directly on its website. And Google has saidit is shifting the emphasis at Motorola Mobility's phone unitfrom low-end phones to more innovative smartphones.

Some analysts had speculated that Google might use theMotorola set-top box business to help it gain a foothold in theliving room, where its nearly three-year-old Google TV effortshave so far failed to make a huge splash with consumers.

"It seems like it would make sense to be able to integratethat into a set top box," said Needham & Co. analyst Kerry Rice,referring to Google TV.

But he said Motorola Home's customers - cable providers andtelecommunications companies - were different than theadvertising agencies and consumers that Google is accustomed toworking with.

The Motorola Home business generated $797 million in revenuein the third quarter, according to Google's financial results,with $25 million in operating income.

Pace said its shares had been suspended from trading inLondon as the potential acquisition would be classified as a"reverse takeover" deal given the size of the acquisitionrelative to Pace.

A deal could help Pace recover from the three profitwarnings it issued in 2011 due to natural disasters such asflooding in Thailand and the earthquake and tsunami in Japanthat damaged the group's supply chain.

"Pace already has a somewhat stretched balance sheet, theyhave done a good job over the past 12 months to try to pay downthat debt but how they would finance such a large acquisition isa question, but not an insurmountable one," said NumisSecurities analyst Nick James.

Shares of Google were just a shade higher in Mondayafternoon trading, up 80 cents, or 0.1 percent, to $685.01.