Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Gemstar Intl (GMST) -- Ignore unavailable to you. Want to Upgrade?

To: Lucas Hsu who wrote (998)	12/7/1999 12:36:00 AM
From: Lucky L	Respond to of 6516

TV Guide Investors Negotiate Gemstar Intl Acquisition Tulsa, Oklahoma, Dec. 6 (Bloomberg) -- TV Guide Inc. shareholders are walking a tightrope as they negotiate the risks presented by the company's proposed combination with rival Gemstar International Group Ltd., which would link the two dominant providers of interactive TV program guides TV Guide shares surged when Gemstar agreed to swap 0.6573 of a share for each TV Guide share on Oct. 4, in an agreement valued at the time at $9.2 billion. In the last month or so, though, TV Guide has failed to keep pace with Gemstar's rampaging stock, which has risen 46 percent since the acquisition was announced. TV Guide shares closed today at a 19 percent discount to what their value would be if the acquisition was completed that day, compared to a 5.8 percent discount on Oct. 15. Shares of companies that have agreed to be acquired typically trade at a discount to what they would be worth under the terms of the agreement because of the risk that the merger may fall through. It's uncommon to see the discount widen as dramatically as TV Guide's has, investors said. ''This is a very unusual situation in terms of the spread starting unusually tight and blowing out as big as it has,'' said Ron Phillips, a portfolio manager with the Weiss, Peck and Greer Merger Arbitrage hedge fund, which doesn't hold shares of TV Guide or Gemstar. One area of concern is whether Gemstar's acquisition of Tulsa, Oklahoma-based TV Guide will clear U.S. antitrust regulators. Investors will closely monitor the outcome of a preliminary U.S. investigation of merger documents the companies filed on Nov. 12. The government's response is expected as soon as Friday. TV Guide President Peter Boylan said he expects the U.S. will lengthen its investigation and ask for additional details from the companies later this month. Such a request could push TV Guide shares down on concern that government regulation may scuttle the acquisition. ''The interesting question is what happens if the government has a second request for information,'' Phillips said. ''You would think that the negative news is already built into the stock, but you never know what will happen.'' TV Guide shares could soar, though, if the government gives the OK, since that would seem to pave the way for the combination to be completed. The spread between TV Guide's market value and what the shares would be worth if the acquisition were completed could go from ''$10 to $3 or $4 in a minute flat,'' Phillips said. Proxy The companies also filed a proxy with the Securities and Exchange Commission on Thursday which is expected to be publicly available in mid-January. Regulators will be examining a proposed company that would dominate the nascent market for interactive program guides, which help users navigate an increasing number of channels offered through digital cable. The guides sort programs by time, day or topic, such as sports or movies. Analysts expect that the proposed company will be able to boost revenue through sales of advertisements and services available on the program guides. The guides ''will eventually serve as a portal to the TV in the same way that Yahoo serves as a portal to the Internet,'' said Stacy Forbes, an analyst with Janco Partners Inc., who rates TV Guide ''buy.'' TV Guide also owns its namesake magazine and other properties such as a horse-racing channel, while Gemstar makes the VCR Plus software. Patents Some investors aren't sure how the regulators will approach Gemstar's broad patent portfolio, which it has repeatedly used to win court victories and concessions from rivals. Gemstar has been pressing a patent infringement case against TV Guide for six years over the technology behind the guides. Domination of ideas and patents rather than domination of market share may be a concern for the government, some investors say. Others who are betting that the U.S. will approve the acquisition say the government has generally been cautious about regulating developing industries and information about TV programming is widely available for consumers. ''It's unlikely that the government is going to go against this,'' said Mark Greenberg, a portfolio manager with the Invesco Leisure Fund. ''There's lots of ways to get information on what's on TV.'' Boylan, who said he remains ''highly confident'' that the acquisition will be completed, also noted that Microsoft Corp. and America Online Inc. have licensed Gemstar's technology and could introduce competing interactive guides. Bitter Rivals Besides concerns about U.S. regulation, some investors also wonder whether Gemstar management can co-exist with TV Guide's leaders. The bitter rivals decided to merge after holding talks to settle their lawsuit. TV Guide in 1998 also failed in its bid for a hostile takeover of Gemstar. The executives could be motivated to find a way to work together in part by a break-up fee that would cost the company that walks away about 4 percent of the value of the merger at the time it is terminated. For investors who believe the acquisition will be completed, TV Guide seems like the cheapest way to invest in the combined company. Some analysts caution that the shares aren't inexpensive, though. Even as TV Guide hasn't kept pace with Gemstar, its shares have still almost tripled this year. To hedge against a dip in both TV Guide and Gemstar shares, TV Guide investors may consider shorting Gemstar at the same ratio as the shares will be exchanged if the acquisition is completed. Short sellers sell borrowed shares in the hopes that the price will fall and they can repay their debt with cheaper shares, pocketing the difference. It's been very unprofitable to bet against Gemstar in recent weeks, though, and analysts think that one reason the company's shares have soared so much is because short sellers have been buying stock to pay back their debts at a loss. TV Guide investors may also have to live with the uncertainty for several months. If the government does lengthen its investigation, there's no guarantee that the spread will narrow anytime soon between TV Guide's shares and what they would be worth if the acquisition is completed in the second quarter as expected, analysts said. ''It's a pretty tricky situation and not at all a slam dunk,'' said Frank Husic of Husic Capital Management, which owns Gemstar shares and isn't looking to buy TV Guide. TV Guide shares rose 2 3/4 to 67 7/16. Gemstar shares rose 5 1/16 to 122 3/16. Dec/06/1999 16:36