Macrovision's Gemstar buy sinks shares

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Shares of Gemstar-TV Guide International surprisingly fell 17% on Friday after Macrovision, a provider of digital content management products, said it has agreed to acquire the News Corp.-controlled programming guide firm for about $2.8 billion in cash and stock. Macrovision plans to create a firm that can offer content and guidance across various media devices.

While sources immediately speculated that Macrovision's intention is to sell off the TV Guide magazine, cable channel and TV content assets and focus on Gemstar's high-tech digital assets, Macrovision CEO Fred Amoroso told analysts during a conference call Friday that, before making such a decision, he needed to "learn a lot more about the entertainment side of the business."

Investors immediately panned the acquisition, concerned about the amount of debt involved and a price tag that was just an 11% premium to Gemstar's closing price Thursday. Not only did Gemstar's stock sink Friday, but Macrovision's stock shed 21%. Gemstar led Friday's decliners on The Hollywood Reporter's Showbiz 50 stock index.

Macrovision, once armed with Gemstar's popular interactive programming guide, is angling to transform from a company that merely protects digital content into one that also distributes it and allows consumers to more easily search for it.

Amoroso said the Gemstar acquisition completes the loop, calling Gemstar's IPG a "critical solution for managing the largest and most rapidly expanding entertainment option in the home today: television programming."

He noted that 7,000 hours of daily programming is available on 530 channels nowadays, not including VOD, HD and mobile channels.

"Without a guide, viewers would simply be overwhelmed in this sea of content," he said.

The acquisition, Amoroso said, compliments the one made last month of All Media Guide Holdings, which provides metadata for music, movies and video games.

Friday's news was part of a flurry of News Corp. deal and reorganization activity as the conglomerate ties up some loose ends before the close of the year, including the proposed acquisition of Dow Jones & Co., which is expected to be completed right after shareholders vote on the deal Thursday.

In another key News Corp. move late in the week, James Murdoch, the son of chairman and CEO Rupert Murdoch, ascended to the post of chairman and CEO of News Corp.'s European and Asian operations, pretty much making him the conglomerate's No. 3 executive and confirming him as the heir apparent. The exec has so far overseen U.K. satellite TV giant British Sky Broadcasting and will in the new position report to News Corp. president and COO Peter Chernin.

In other deals, News Corp. is expected to soon announce the sale of nine Fox TV stations to private-equity firm Oak Hill Capital for about $1 billion. Plus, it has been eyeing a sale of its Russian outdoor advertising business for what analysts estimate to be another $1 billion-plus transaction.

A sale of Gemstar had been expected since 41%-shareholder News Corp. pushed for a strategic review this year. News Corp's. purchase seven years ago of a major stake in Gemstar is considered a rare misstep for the conglomerate. At the time, Gemstar was worth $30 billion, though at the purchase price announced Friday, News Corp.'s investment is worth just $1.15 billion.

Gemstar CEO Rich Battista will leave the company once the deal closes. Macrovision's president and CEO Fred Amoroso will run the merged entity and keep the same titles.

Under the terms of the sale, Gemstar stockholders can choose $6.35 in cash or 0.2548 of a share of common stock in a new holding company that will own both Gemstar and Macrovision. The per-share value represents a 29% premium to the 10-day average closing price of Gemstar's stock before its review of strategic alternatives announced July 9. The cash laid out to Gemstar shareholders will not exceed $1.55 billion.

Macrovision stockholders will own about 53% of the combined company. The transaction is expected to close by the second quarter of 2008.

News Corp. has agreed to vote its Gemstar shares in favor of the deal. Bank of America Equity Research analyst Jonathan Jacoby estimates News Corp. will receive about 44% of its consideration in stock and 56% in cash.

"A transaction with Macrovision delivers the most compelling opportunity to deliver stockholder value," Battista told analysts Friday.

"We think it's a smart combination of businesses and look forward to seeing how it performs," a News Corp. spokeswoman said. "We'll continue to evaluate our remaining investment as we do all our business investments."

Jacoby reiterated his "buy" rating on News Corp. on Friday, calling the conglomerate's stock his "favorite idea for 2008."

Paul Bond reported from Los Angeles; Georg Szalai reported from New York.
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