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Strategies & Market Trends : Gorilla and King Portfolio Candidates
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To: Mike Buckley who wrote (7509)10/4/1999 10:39:00 PM
From: Mike Buckley  Read Replies (3) of 54805
 
I haven't had a chance to digest the news about Gemstar, but there is one superficial bit of information that piqued my attention. It's relative to my concern that Gemstar's market cap was (as of Friday) about 16 times estimated revenue five years from now.

The new and improved TV Guide is expected to have revenue of about $1.5 billion. In round numbers, there will be about 200 million shares outstanding. At today's close, that translates to a $15 billion market cap. All of that translates to a PSR of about 10 -- and that's a current PSR, a vast improvement for us valuation junkies.

Now we need to take the time to decide why the PSR changes so dramatically.

As for that Fool write-up at fool.com , I have to differ with one comment: "To say the deal is a shock is an understatement; ... no one, it seems, expected the legal wrangling to give way to a friendly merger." It wasn't a likely outcome, but it WAS one possibility we contemplated here.

Does anyone have an idea as to why it will take so long to close the deal? It could be a year or longer from now based on the press release. I realize that the press release also said there are few restrictions to the deal that could get in the way, but I also remember that the Gem and TV Guide had a previous cessation of their lawsuits fall flat on its face. Does anyone have an opinion as to the degree of risk that this deal might not be consummated?

--Mike Buckley

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