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.
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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
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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. |
