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Arris, Pace Outbid for Google Unit

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Arris Group Inc. (ARRS - Free Report) , a cable equipment manufacturer along with Pace Plc have submitted the most compelling bid for Google Inc.’s Motorola Home Business, as reported by Bloomberg. The Motorola Home Business mainly sells set top boxes and equipments to cable companies. Pace Plc is a leading Yorkshire-based set top box manufacturer.

Both Arris and Pace have outpaced multiple bidders for the unit, which Google has been trying to sell to revamp Motorola’s ailing smartphone business. Google plans to fetch around $2 billion from the transaction.

Although the final deal depends how the two parties agree on several financial complexities, various industry sources forecasted that it may get cleared by the end of 2012. Google plans to retain some of its equity and patent ownership, which might prevent Arris to go through the deal, fearing management interference.

In May this year, Google acquired a 100% stake in Motorola Mobility in an all cash deal worth $12.5 billion. Motorola Mobility’s impressive portfolio of 17,000 patents will allow the search engine giant to compete more efficiently with the likes of Apple Inc. (AAPL - Free Report) and Samsung Electronics Co. as the smartphone battle intensifies around the world.

Recently, Arris’ third-quarter financial results surpassed the Zacks Consensus Estimates. The company’s Broadband Communication Systems segment recorded a quarterly revenue growth of 39.2% year over year and has shipped 81,364 C4 CMTS downstream ports.

If Georgia-based Arris succeeds in acquiring the unit then it will become a dominant CMTS (cable modem transmission system) player behind market leader Cisco Systems Inc. (CSCO - Free Report) . Moreover, Arris could witness considerable revenue contribution for its set top boxes as the demand for the same is expected to rise following the deal.

However, on the downside, the company would need to raise money in order to finance the transaction, which in turn could impact its debt position. Motorola’s patent-infringement litigation with TiVo Inc. (TIVO - Free Report) is also an additional cause of concern for the company.

We maintain our long-term Neutral recommendation on Arris Group Inc. Currently, it holds a Zacks #3 Rank implying a short-term Hold rating on the stock.

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