Gemstar re-examines biz strategy

Eyes options, including sale, to increase company value

Programming guide firm Gemstar-TV Guide International Inc. is exploring its strategic alternatives, including a sale, to maximize shareholder value.

For major shareholder News Corp., the decision could lead to yet another sale of a noncore asset along with an inflow of cash at a time when the media giant is inching closer to an acquisition of Wall Street Journal owner Dow Jones & Co.

One Wall Street observer said Monday that there seems to have been some deal speculation even before the news, which came after Monday's market close. After all, Gemstar shares set a 52-week high of $5.39 intraday before closing up 4.7% at $5.34. This made Gemstar the biggest gainer Monday on The Hollywood Reporter Showbiz 50 stock index.

That gave the company, whose shares rose beyond $6 in after-hours trading, a market capitalization of $2.3 billion, according to Yahoo Finance. The stock's previous year-high was $5.26.

Gemstar is known for its TV Guide magazine and electronic program guides.

News Corp. has been in heightened deal mode of late, putting some noncore assets on the auction block to refocus its corporate resources on growth businesses and further boost its financial flexibility (HR 6/26). Among the properties up for sale are nine Fox TV stations and the News Outdoor Group.

A spokesman for Rupert Murdoch's News Corp., which owns about 40% of Los Angeles-based Gemstar, said that the company "continues to be very pleased with the progress that (Gemstar) management has made in recent years and the strategic direction of the company."

However, he added that "Gemstar's core competencies are in cross-platform video guidance, which is not an area in which News Corp. is seeking to increase its presence." As a result, he said, the media conglomerate "fully supports" Gemstar's decision to explore strategic alternatives.

Gemstar said that its board has authorized management and its advisers to look at the firm's options to maximize shareholder value. A Gemstar spokeswoman declined further comment.

"The company has made significant improvements throughout its businesses, and the board is very pleased with the growth and strategic direction under CEO Richard Battista," Gemstar chairman Anthea Disney said. "We are now poised to investigate the range of available strategic alternatives for continuing to build shareholder value."

Wall Street observers suggested late Monday that private-equity firms likely are to be among the potential suitors.

News Corp. almost doubled its stake in Gemstar, close to its current level, in a deal with John Malone's Liberty Media that was announced in September 2000 and completed in May 2001. The deal, at the time valued at about $5.3 billion, also increased Liberty's stake in News Corp. to about 18% of what was then nonvoting stock. Liberty later swapped the stock into voting shares, which News Corp. has agreed to buy back.

News Corp. management and Wall Street analysts have in recent quarterly earnings calls with News Corp. management shown more interest in the future of digital assets like MySpace and less in discussing Gemstar, which had led some on the Street to suggest that the company could look for a sale down the line.

Battista has worked to refocus the firm. In May, Gemstar reported a sharply higher latest quarterly profit thanks to better results in its programming-guide business and lower expenses at TV Guide magazine.

According to industry sources, Gemstar's New York staff is expected to move this year from the News Corp. headquarters in Midtown Manhattan to a new location in the city as both have seen growth that has led to a shortage of space.

UBS Investment Bank is acting as financial adviser for Gemstar; Wachtell, Lipton, Rosen & Katz is the legal adviser.