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Macrovision-Gemstar: Conference Call: Synergies; Magazine Future; Stock Jitters; $800m Debt

imageThe way to view this morning’s announcement, that Macrovision (NSDQ: MVSN) will buy Gemstar-TV Guide, is in the context of its earlier deals for Mediabolic and AMG. As CEO Fred Amoroso explained on the call, Mediabolic enables the delivery of content across consumer devices, while AMG supplies the data that identifies that content. Gemstar, then, adds “the most critical part of the puzzle”: discovery. “In the future, we believe the guide will form the homepage for the total media entertainment experience.” With these components, the company says it can help operators and consumer electronics manufacturers offer consumers the ability to access their entire content library through a single platform.

Synergies: In addition to the above, Amoroso outlined some specific, immediate ways in which the combination could drive revenue growth. AMG does data licensing, but has never had TV information, so this will help on that front. Conversely, Gemstar-TV Guide has years of data on TV and movies, but has never been in the data licensing business, so there’s an opportunity to cross-sell. At first, CFO James Budge would only say that the deal would offer “significant” cost savings over the coming year. Later on, when pressed, he pegged it around $50 million.

TV Guide magazine & network: During the Q&A there was a question about the future of the magazine and the television network, which don’t seem central to the vision. Officially, there’s no plan to divest of them, but it sounds like a possibility. Amoroso: “[I plan to] spend more with rich and his team before making any decision about their strategic value.” He then added that the magazine shouldn’t be seen as a magazine, but rather another platform for delivering TV Guide information.

Other options: Gemstar-TV Guide CEO Rich Battista spent some time describing the company’s decision, from its originally announced plan to seek strategic alternatives. There were other options (he declined to get into specifics), but ultimately, “A transaction with Macrovision represented the most compelling opportunity to deliver stockholder value.” What made this deal attractive was the combination of cash and stock, allowing shareholders to retain a sizable stake in the combined company.

Transaction: As Budge explained, the deal will technically involve the creation of a new holding company comprising of the two firms. The cash component of the acquisition will be financed via the combined cash of the two companies, and up to $800 million in debt financing, comprised of a $650 million term loan and a $150 million bridge facility, to be tapped in the event that other outside financing is not found.

Growth: Macrovision has done YTD revenue of $199 million, with a total year estimate of $283 million. GMST is over twice as big on the revenue side, having done $473 million YTD. Going forward, the companies are targeting annual revenue growth of 10-15 percent, for at least the next few years. They also anticipate being able to pay down debt within 3-4 years, based on annual free cash flow greater than $200 million. Full financial details are available in slides filed with the SEC.

Market reaction: As the the Q&A wore on, there was definitely a change in tone, as callers watched the shellacking that both companies’ shares are taking today. Battista stuck to his guns, that the deal offered a significant premium from where the company was in July. Amoroso acknowledged that it was a big, complex deal, that would require $800 milllion in debt, and so market skittishness was understandable. Nonetheless, he added, “we are compelled by the strategic vision of what the companies can offer.” It was added that market swings would not affect News Corp.’s (NYSE: NWS) support of the merger.

Breakup fee: Near the end, a questioner asked whether there was a breakup fee associated with the deal. The first answer: “there is, and we won’t quantify it… that will all come out.” Second answer, after some mumbling: just under $56 million.

The investor presentation and internal employees FAQ, was filed wiht the SEC earlier today. The document, as a PDF, below (RSS readers will have to click through)

Disclaimer: Macrovision is a sponsor of paidContent.org.

2 Responses to “Macrovision-Gemstar: Conference Call: Synergies; Magazine Future; Stock Jitters; $800m Debt”

  1. Very interesting deal and i do think there are synergies there.

    On delivering the "total media entertainment experience" and "discovery" – this isn't covering the rapidly growing segment of online video, particularly indie web shows, video blogs, and UGC. If you talk to any 14-25 year-old nowadays, you will find very few that actually think of TV Guide as a "total media entertainment experience".

    Financially, i am sure this deal makes sense. Strategically, I do expect Macrovision will have to explore the world of online video discovery (beyond just traditional TV content) to capture the younger demographic.