Street's Gemstar wheels turning

Shares hit 52-week high amid talk of deal scenarios

Shares of Gemstar-TV Guide International hit a 52-week high Tuesday as investors cheered the company's announcement that it is mulling a sale and other strategic options.

The stock closed up 12% at $5.98 after going as high as $6.11 intraday. Gemstar was Tuesday's top gainer on The Hollywood Reporter's Showbiz 50 stock index. Its previous year-high was $5.40.

Meanwhile, Wall Street observers Tuesday weighed in on likely deal scenarios for the owner of TV Guide, interactive program guides and TV networks, suggesting a likely breakup and that cable giant Comcast Corp. could be among the suitors.

Morgan Joseph analyst David Kestenbaum, who rates Gemstar shares a "hold," said in a report that he was "surprised" about Monday's news of a possible sale but added that Rupert Murdoch's News Corp., which owns 40.9% of the firm, surely pushed for it.

Street observers pointed to past accounting troubles at Gemstar, a big write-down News Corp. had to take on its investment in the company a few years ago and continuing challenges for TV Guide magazine as key reasons why News Corp. would sell.

Kestenbaum said that "recent improvements shown by Gemstar-TV Guide across the board" under the leadership of CEO Richard Battista could have made the boards of News Corp. and Gemstar feel that this is the right time for a deal.

An auction will "likely result in a breakup of the company" even though Gemstar management "has long trumpeted the synergies gained by deploying guidance solutions across a wide variety of platforms," Kestenbaum said.

A sale for $5.70 per share, which would be a 6.7% premium over Monday's closing price, "would represent a fair value for Gemstar-TV Guide," he said.

Miller Tabak + Co. analyst David Joyce said Gemstar is a "logical target for any of the cable, satellite or phone video providers, especially those few that currently have some current content assets that could dovetail with Gemstar's offering," especially cable giant Comcast.

"Comcast's E! and Style channels, obvious competitors, would be a strategic fit, and Comcast has an investment in developing its own Gemstar programming guide," he said.

At Monday's closing price, News Corp.'s stake in the firm is worth about $937 million, according to Joyce, who noted that the conglomerate also is looking to sell nine TV stations and its outdoor unit. Before taxes, these asset sales could raise $3.5 billion-$4 billion, he said.

Meanwhile, JPMorgan analyst Barton Crockett, who rates Gemstar shares at "overweight," suggested that a separation of the firm into different parts could eliminate cross-platform costs. In such a scenario, he said the company's value could rise to $6.15 per share or even more if "an acquirer assigns more aggressive multiples to any of Gemstar's businesses."

Alex Woodson contributed to this report.