TiVo (NASDAQ:TIVO) is up 6.2% out of the open after news of Rovi's (NASDAQ:ROVI) $1.1B deal to buy the company this morning -- a move short of the 14% premium to yesterday's close that Rovi is paying.
TiVo's at $10.01 vs. the $10.70/share offer; Rovi is up 11%. The deal, combining two similar companies in the world of DVRs and electronic program guides, is expected to be accretive to adjusted profit within 12 months.
Rovi pays $2.75/share in cash and another $7.95 a share in stock in a new holding company for the combination.
That leaves current Rovi shareholders owning 66.8%-72.9% of the company; it's expected to be a tax-free exchange for TiVo shareholders.
The combination will keep the TiVo name but be led by Rovi chief Tom Carson, and sport revenue of more than $800M. Interim TiVo CEO Naveen Chopra says it's "the logical next step."
Shares in TiVo (TIVO +2.1%) are up 6.2% after hours, riding a spike that came when Rovi (ROVI -3.2%) elected to unexpectedly postpone its quarterly results call to tomorrow morning at 8 a.m. ET.
That's made hopefuls of TiVo shareholders expecting a Rovi buyout, Jeff Baumgartner notes. The two were linked last month in "advanced negotiations" for a TiVo sale to Rovi, and Bloomberg reported this month that discussion was centered on the long-term value of patent portfolios.
The NYT reports DVR hardware/software provider TiVo (TIVO +17.4%) is in "advanced negotiations" to sell to program guide/content protection IP provider Rovi (ROVI -2%). TiVo has blasted off on the report, while Rovi is down moderately.
TiVo shareholders would reportedly receive cash and stock, and "probably" own ~30% of the combined company. Rovi activist Engaged Capital (won two board seats last year) is said to have pushed for a merger with TiVo.
In addition to its DVR-related offerings, TiVo provides cloud-based content discovery services and set-top/portal server software for emerging markets, thanks to its acquisitions of Digitalsmiths and Cubiware. Both TiVo and Rovi derive a large % of their sales from pay-TV providers.
Rovi (ROVI -9.7%) is seeing steep losses on healthy volume - 1.89M shares have been traded thus far, matching Rovi's 3-month full-day average. The decline has been blamed on news AT&T plans to begin offering Web-based DirecTV service options, including a service aimed at cord-cutters (called DirecTV Now) and one aimed at mobile users (called DirecTV Mobile).
The service stands to put DirecTV into competition with Dish's Sling TV, Verizon's Go90, and Sony's PlayStation Vue - Apple has been rumored to be weighing a Web TV launch - and has stoked fears Rovi's traditional pay TV-driven revenue will get hit. Rovi is less than three months removed from striking a new 7-year licensing deal with AT&T.
JPMorgan's Sterling Auty is defending Rovi, arguing the broader adoption of Web-based (OTT) video services and skinny bundles will help the company "lock in incremental new customers that will take revenue higher." He also sees expected contract renewals with Comcast and Dish acting as catalysts.
Last month: Rovi soars above $20 after big Q4 beat; AT&T/Sony renewals lift sales
Rovi (ROVI +16.3%) has surged after soundly beating Q4 estimates. On the earnings call (transcript), CFO Peter Halt stated Q4 benefited from catch-up payments by AT&T and Sony - Rovi renewed its licensing deals with both companies in December, while also expanding the scope of the AT&T deal. The payments offset lower analog copy protection (ACP) licensing revenue and the end of a business relationship with a set-top licensee.
For now, Rovi's 2016 guidance doesn't include revenue from Comcast and Dish, though Rovi expects to successfully renew its licensing deals with both firms. Excluding Comcast/Dish, the company expects 2016 revenue of $490M-$520M and $1.35-$1.65; consensus is at $570.1M and $2.01.
Q4 details: The AT&T payment helped service provider revenue rise 18% Y/Y to $124M. Consumer electronics revenue fell 8% to $22.3M, with Rovi blaming "continuing challenges in the CE industry." Other revenue fell 32% to $1.6M due to the ACP decline.
Boosting EPS: Non-GAAP costs/expenses rose only 2% Y/Y to $82.3M thanks to an 8% Y/Y drop in headcount. No buyback occurred in Q4. Rovi ended 2015 with $325M in cash and $967M in debt.
ROVI is partnering with IP licensing firm Intellectual Ventures - often referred to as a patent troll by its many critics - to provide joint licensing for Rovi and IV's over-the-top (online video) patent portfolios.
Rovi: "The combined portfolio addresses all aspects of the OTT value chain, including content management and delivery, streaming technologies and consumer-facing features and functionality. Building on Rovi's well-established patent licensing program, the addition of IVs patents significantly expands the breadth and depth of assets licensable to OTT customers." It adds the partnership "more than doubles Rovi's over 5,000 issued patents and pending applications worldwide directed to entertainment and media-related technologies."
Last July, Rovi fell sharply after OTT patents asserted against Netflix were ruled invalid. At the time, the company said it planned to appeal the invalidity ruling.