GMST--Gemstar-TVGuide pushes full steam ahead
July 13, 2000
by Louise Rosen
Yesterday's news that the Department of Justice finally approved the merger of TV Guide (TVGIA) and Gemstar International Group (GMST) ended months of speculation, sent both companies' share prices soaring, and heralded the arrival of a huge patent portfolio.
Pasedena, Calif.-based Gemstar creates and holds many patents for interactive television guide technology, essentially a portal and search engine for the television-watching world. TV Guide, based in Tulsa, Okla., is one of the largest circulation magazines in the U.S.
The interactive TV guide arena is a modest market at the moment but should explode over the next three years, according to analyst reports. The growing developments in satellite television, and the convergence of Internet, television and telephones mean the market could become a multibillion-dollar arena within four years. The bigger the market and the greater the demand for this type of technology, the more important Gemstar's patents become.
A patent powerhouse
The newly merged company, dubbed Gemstar-TV Guide International, will be a patent powerhouse. It holds patents for the technology that enables television viewers to interact, search and channel surf. Between them, the two companies have an impressive IPG portfolio with around 200 patents and thousands of claims.
The new company will be headed by Henry Yuen, CEO of Gemstar, and will trade under the GMST ticker.
In October, the two companies announced their intent to merge in a stock-for-stock deal valued at an estimated $15 billion. At the time, the DoJ launched an antitrust investigation to determine whether the two companies combined would dominate the interactive TV technology market.
When the DoJ approved the merger on Wednesday, John Corcoran, Internet and new media analyst at CIBC World Markets, told UpsideToday, "Analysts got off the fence after months of waiting," and the stocks surged.
By midday Thursday, TV Guide's share price soared 27 percent, and Gemstar's price had gone up by 8 percent. TV Guide closed up $9.63 to $45.63 and Gemstar closed up $.88 to $70.63.
"The Department of Justice conducted a very thorough investigation over antitrust and very complicated patents," Joe Kleiner, co-president and co-chief operating officer of the new company, told the New York Post.
Cloud has lifted
Investors had every reason to worry. The merger was not completed in Q1 2000, as executives originally said it would, leaving most to assume the DoJ was going to block the move. The merger's completion date was pushed back twice more, and the cloud hanging over the share price thickened.
Now, says CIBC World Markets' Corcoran, "The cloud has lifted, and investors are increasingly interested in the stock." He has upped his rating on the new Gemstar/TV Guide company to a "strong buy."
Revenues for the combined entity are reported to be around $1.5 billion with an estimated cash flow of $350 million, and a market capitalization of $32 billion.
The company's future looks bright. It already has deals in place to license its technology to industry leaders such as Aiwa, America Online (AOL), Hitachi (HIT), Microsoft (MSFT) and Sony (SNE), among others.
Another plus is that Gemstar's history of vigorously enforcing its patents won't likely be changed by the government. Corcoran explained, "Patent portfolios are essentially a government-sponsored monopoly, which means that they will not be subject to more scrutiny from the DoJ."
Corcoran believes the company's revenue streams will only widen as convergence between TV and computers increases. Right now Gemstar generates revenues from licensing its technology to consumer electronics manufacturers and cable programming distributors. However, with convergence, more advertising will run on the listing programs, and Gemstar will have the opportunity to increase its ad revenue as well as develop e-commerce offerings.
"As long as they have this portfolio and continue to develop relationships globally, the company will remain in front," Corcoran says.
Louise Rosen covers Silicon Alley, digital publishing, media and advertising for UpsideToday. Reach her at lrosen@upside.com. |
