Oct 23 (Reuters) - British set-top box maker Pace Plc said it would buy U.S.-based network gear maker Aurora Networks Inc for $310 million in cash to diversify its products to cable customers.
Pace said the acquisition would significantly add to 2014 earnings and was expected to generate annual cost synergies of $8 million by the end of next year.
The company will also pay an additional $13 million on closing of the deal related to tax benefits.
The deal will be funded through a new $310 million five-year term loan, Pace said on Wednesday.
Aurora manufactures optical systems used by cable companies to build fiber-optic networks. The company, whose products include equipment such as amplifiers, transmitters, receivers and switches, reported revenue of $217 million in the year ended March 31.
Jefferies analyst Lee Simpson said that the existing cash conversion at Pace, together with synergies from this deal should pay off within two years.
“Pace targeted this opportunity without impairing the existing capital structure - no rights issue was used, so no investors were diluted. The simple addition of profits sees the new group with around $240 million EBITA on (revenue of) about $2.6 billion pre-synergies,” Simpson wrote in a note to clients.
Aurora will operate as a strategic business unit of Pace and will continue to be run by its existing senior management team, the TV decoder maker said in a statement.
Pace added that 15 percent of the deal value would be reserved for Aurora’s existing management and employees as a retention tool.
J.P. Morgan Cazenove acted as Pace’s financial adviser on the deal, which is expected to close by the end of the year.
Shares in Yorkshire, Northern England-based Pace were up 5 percent at 304.3 pence at 0702 GMT. (Reporting by Roshni Menon in Bangalore; Editing by Supriya Kurane)