In my earlier post regarding the acquisition of Skype by Microsoft (NASDAQ:MSFT), I argued that the question of whether or not Microsoft overpaid will not be known for some time and will ultimately be determined by their ability to integrate and execute.
One of the often articulated bear arguments against Microsoft over the last few years has been that they are a large organization that is not nimble, lacks leadership, and are reactive rather than proactive. The Skype deal gives them the opportunity to directly address the first two of these critiques. As for being proactive, rather than reactive, I believe is really just bear rhetoric meant to imply a lack of vision and creativity. In reality, the companies given credit for vision, forward thinking, etc. often improve upon ideas rather than invent brand new ideas. For example, the concept of the smartphone was not thought of by Apple (NASDAQ:AAPL), rather they did it better than anyone else had and were early to market. The original palm pilot pre-dated the subsequent ubiquity of the blackberry, but it was Research in Motion (RIMM) that took the PDA concept and created the first must-have email-ready PDA.
Robin Wauters, in his seekingalpha article on the Skype Microsoft deal, mentions some of the touch points between Microsoft and Skype that are key to the deal's strategic merits:
"Microsoft, of course, has the exact same ambitions of ubiquity, and Skype and recently acquired Qik fit nicely into many of its current product offerings: think Windows Phone [combined with Nokia (NYSE:NOK)], Xbox and Kinect, Bing, Office 365, Windows Live Messenger and other Live products, Lync, Outlook, SharePoint, Internet Explorer, Azure, and so on."
Two things jump out at me. First, Xbox and Windows Phone, are both consumer focused products. Xbox in particular is a living-room device. Another living-room device that fits with Xbox and Skype is Tivo (NASDAQ:TIVO).
In my article on Tivo from May 5th, I argue, among other things, that with the Dish (NASDAQ:DISH) settlement behind them and the uncertainty surrounding the associated litigation behind them, Tivo makes a much better acquisition candidate. Combining Xbox, Skype and Tivo would be a powerful combination. Tivo is an excellent content interface that is embracing the multiple content channels from traditional cable television to streaming internet-based content. Tivo, like Skype, has strong brand recognition and Tivo applications for smart phone and tablets make a lot of sense.
Microsoft in 2011 has put themselves in position to shed their lumbering dinosaur image. They have substantial opportunities with Nokia and now Skype. Tivo's market capitalization of $1.1 billion, plus a 30% premium and the $300 million upfront payment from Dish would put the price tag at approximately $1.7 billion. While not cheap for a company with $220 million in sales that is losing money Tivo could be a very valuable assets in the hands of Microsoft. It gives them another offering to the consumer in the living-room that can be integrated with their existing products. And, just as the price tag for Skype was mitigated by the use of overseas cash, Tivo brings along net operating losses that would have value for Microsoft. Further, Tivo and Microsoft are involved in litigation for infringement of the same IP that Dish infringed on. If Microsoft acquired Tivo, this litigation would no longer be an issue for either party saving legal costs and more importantly any penalties that would otherwise be incurred in the future.
With Skype and Nokia Microsoft has multiple shots on goal. Adding Tivo to the mix would give them another opportunity that is synergistic with their current strategy.
Disclosure: I am long MSFT, TIVO.