Gemstar, WSJ>
October 5, 1999
Tiny Gemstar to Buy TV Guide
For About $7.72 Billion in Stock
By JOHN LIPPMAN and EVAN RAMSTAD
Staff Reporters of THE WALL STREET JOURNAL
PASADENA, Calif. -- Tiny high-tech upstart Gemstar International
Group Ltd. has agreed to buy publishing icon TV Guide Inc. in a stock
transaction valued at about $7.72 billion, ending contentious litigation
between the two rivals.
The deal marks the latest twist for TV Guide, the nation's largest
mass-circulation publication, with 11 million copies sold weekly. Rupert
Murdoch's News Corp. bought TV Guide 11 years ago for $2.8 billion
and earlier this year spun it off into a joint venture co-owned with Liberty
Media Corp.
News Corp. has been looking for ways to leverage TV Guide's famous
brand name into an electronic program-listings service on cable and the
Internet to offset the magazine's declining circulation and advertising.
Dominating Influence
The deal unites Gemstar, the leading provider of onscreen program guides
built into electronic devices, with the leading publisher of program guides
and operator of program-guide cable channels, TV Guide. The combined
company is likely to have a dominating influence on the operation of TVs in
the future.
All Programming All The Time
Gemstar to merge with TV Guide combining on-screen programming
with print television schedules:
TV Guide
Gemstar
Headquarters
Tulsa, Okla.
Pasadena, Calif.
'98 Revenue
$598.4 million
$166.46 million*
'98 Profit
$64.78 million
$73.9 million*
Employees
1,700
211
Business
Media company providing
satellite-delivered products
to customers as well as TV
Guide magazine.
On-screen
television-program guide
services with brands
including VCR Plus+.
*For fiscal-year ended March 31, 1999
Source: The companies
Pasadena-based Gemstar, which has only 211 employees and had
revenue last year of just $166 million, is a highflying intellectual-property
company that holds several lucrative technology patents that allow viewers
access to electronic program guides through hand-held remote controls.
Gemstar and TV Guide and their predecessor companies have been
slugging it out in Oklahoma state court for six years over technology for
delivering program times and other information into TVs, computers and
other video services.
The lawsuits had been "casting a cloud on both companies and straining the
relationships of Gemstar with cable companies," said Gemstar Chief
Executive Henry Yuen. "We hope there is a better way."
Amid the squabbling, TV Guide Inc.'s predecessor company, United
Video Satellite Group Inc., in 1998 attempted to buy Gemstar for $2.8
billion in cash, but the offer was spurned as too low. Since United Video
dropped its bid, Gemstar shares have risen more than fivefold and TV
Guide shares have more than tripled.
Gemstar Shares Fall
Under terms of the deal, each class A and B shareholder of TV Guide Inc.
will receive 0.6573 common share of Gemstar, giving the transaction a
value of $7.72 billion, based on yesterday's closing price of Gemstar and
TV Guide's 154.2 million class A and B shares. In Nasdaq Stock Market
trading, shares of Gemstar closed at $76.1875, down $7.4375, or 9%.
TV Guide's class A shares, meanwhile, jumped 11%, or $4.4062, to
$45.9375.
The companies said the exchange ratio isn't subject to adjustment. In
addition, Gemstar will assume about $600 million in TV Guide debt.
Gemstar has about 126 million fully diluted shares outstanding.
News Corp. and Liberty Media have both agreed to the deal. After the
transaction, News Corp. and Liberty Media will each own about 19% of
Gemstar. The new Gemstar board will consist of 12 members, with six
appointed by Gemstar and six appointed by TV Guide Inc. Mr. Yuen will
serve as chairman and cast any tie-breaking votes.
The market for electronic program listings is potentially lucrative but still in
its infancy. Electronic program guides offer a new platform for advertisers
who are seeing their audiences diluted with the expanding number of
viewing opportunities, both on television and the Internet.
Toehold on Web
In the battle to establish an electronic program guide, TV Guide had forged
important relationships with the country's cable-television operators and
gained a toehold on the Web. Gemstar has exclusive relationships with
TV set manufacturers, America Online Inc., and Microsoft Corp.,
collectively known as the "noncabled" opportunity. Both companies have
begun or planned to offer advertisers space on their respective guide
services.
"Even though historically the interactive-guide business has been very small,
prospectively it should be huge. Hence the large valuation" on the deal, said
Joseph T. Arsenio, an analyst with Hambrecht & Quist in San Francisco.
Onscreen guides are likely to have the same ability to influence viewing
choices that Internet search engines have to direct usage of online
information.
Already, Thomson SA, maker of RCA and Proscan-branded TVs, and
Sharp Corp. are shipping TVs that show Gemstar's GuidePlus onscreen
guide as the first thing that appears when a TV is turned on. Many cable
companies devote a channel to a scrolling guide service operated by TV
Guide, which is based in Tulsa.
John Corcoran, analyst at Stephens Inc. in Little Rock, Ark., said investors
were expecting Gemstar and TV Guide to soon settle the litigation but
were surprised by the deal. The combination of Gemstar's interactive
program-guide technology and TV Guide's ties to the cable industry
"leaves us with a company that should be able to grow the interactive-guide
business beyond our previous expectation," Mr. Corcoran said.
Executives of the two companies said they will continue to face stiff
competition in guides, particularly from Internet sites that will eventually be
more readily accessible from a TV. But Mr. Corcoran said companies that
have been developing onscreen guides and interfaces independently will be
overshadowed by Gemstar's reach.
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