Saltaire electronics firm Pace Micro Technology has agreed a £68 million deal to buy the set-top box business of European electronics giant Philips.

It is estimated that the move will make Pace the third-largest digital TV technology company in the world.

Philips STB is a leading designer and supplier of digital TV products including satellite, cable, terrestrial and IPTV set-top boxes. The firm employs about 335 staff, predominately in France.

The Philips STB turnover for the year ending December 31, 2006, was 357.2m Euro (£268m) but the firm suffered a loss of 39.3m Euro (£29m).

The acquisition is classified as a reverse takeover under the Listings rules due to its scale. As a result of this Pace shareholders must accept the move, which will be put to them at a meeting of shareholders in March next year.

Ordinary shares in Pace were suspended from trading on the announcement, according to Stock Exchange rules. Trading will recommence following the posting of a circular outlining the proposals to share holders and publication of a prospectus.

Under the planned all-share deal, Philips will take a 22.5 per cent stake in Pace, becoming the firm's largest shareholder, overtaking co-founder David Hood.

Neil Gaydon, chief executive officer of Pace, said: "Based on 2006 performance, this deal will create a company with pro forma revenues of more than $1 billion, producing approximately 8.5 million set-top boxes a year.

"Pace and the Philips STB and CS Business's combined technologies, expertise and customer reach will create a leading centre of excellence in the set-top box industry.

"There is a strong strategic fit from customer, product, geographic, culture and scale perspectives. We have minimal customer overlap and the combined group will have a significantly enhanced technological position.

"The acquisition brings capabilities in IPTV, terrestrial, retail and connectivity products, which will extend the strong position we have built through relationships with leading pay TV operators.

"We also believe there is potential for improved efficiencies by utilising the operating model and business structure we have built at Pace over the last two years."

Pace's last market update, on October 19, stated the company was on track to meet the board's expectations for the shortened financial year for the seven months up to December 31 this year.

The board has confirmed that Pace continues to perform in line with its expectations for that financial period.

Pace was established in 1982 at a time when innovations such as the internet, home PCs and broadband were beginning to have an impact on consumer entertainment in the home.

For the first five years of its life, Pace operated as modem developers and manufacturers in this market before making the transition into television where it developed the analogue set-top boxes that launched the first pay TV television services across the globe. In 1995 the firm moved into digital services.