Macrovision said it would buy Gemstar-TV Guidefor $2.8 billion in cash and stock, but investors were skeptical of its bet to deliver entertainment across consumer devices, sending shares of both companies sharply lower.
Macrovision shares dropped more than 26 percent after the company said it would raise $800 million in new debt to finance the deal, while Gemstar slid more than 16 percent.
Macrovision said it would combine its anti-piracy technology with Gemstar's interactive program guide, technology used by cable and satellite television companies, to allow protected TV shows, films, photos or music to be available on many devices beyond the television.
"For the consumer, (this deal) is all about discovery, making it very easy to find stuff (and) to acquire it, doing an automatic download." Macrovision Chief Executive Fred Amoroso said in an interview. Amoroso will remain CEO after the deal closes, expected by early in the second quarter.
"I want to take this movie, store it in my PC and then play it ... in my daughter's bedroom TV," he said.
Gemstar-TV Guide shareholders will get $6.35 per share in cash or 0.2548 of a share of common stock in a new holding company that will own both Gemstar-TV Guide and Macrovision.
Macrovision shareholders will own about 53 percent of the combined company. Former Gemstar stockholders will own about 47 percent of the new entity, which will seek continued listing on the Nasdaq stock exchange.
News Corp owns about 41 percent of Gemstar-TV Guide and has agreed to vote in favor of the deal.
"We think it's a smart combination of businesses," a News Corp spokeswoman said. "We look forward to seeing how it performs. We will continue to evaluate it."
Double-Digit Revenue Growth
The takeover price represents a 6 percent premium over Gemstar's closing stock price of $5.98 on Thursday and a 24.5 percent premium over the price of Gemstar's stock when it put itself up for sale in July.
But the $2.8 billion value of the deal compares with Gemstar's market cap of about $30 billion in September 2000, when News Corp announced a deal that would make it the largest shareholder. At $6.35 per share, News Corp's stake in Gemstar-TV Guide is worth roughly $1.15 billion.
Macrovision expects the new combined company to deliver annual revenue growth of 10 percent to 15 percent. Company executives said on a conference call they expected "sizable savings" from the deal.
Gemstar-TV Guide distributes interactive program services to television and also publishes TV Guide magazine.
With the combined entity, consumers would be able to pull up a guide on their TV or mobile phone and receive personalized information on their favorite TV shows or read movie reviews before purchasing or renting a film.
"This will develop over the next three to four years, as the enhanced technology comes in," said Rich Battista, CEO of Gemstar-TV Guide, noting that during that time more consumer electronics devices will have direct Internet connections.
Macrovision Chief Financial Officer James Budge will serve as CFO of the combined company. Battista and Gemstar CFO Bedi Singh will be leaving the organization, the companies said.