Macrovision to Acquire Gemstar-TV Guide

Macrovision, a provider of digital protection solutions, is set to acquire television-program-guide provider Gemstar-TV Guide International in a cash-and-stock deal valued at approximately $2.8 billion.

Under the terms of the deal, Gemstar-TV Guide shareholders will have the right to convert each share for either $6.35 in cash or 0.2548 shares of common stock in a new company that will hold both Gemstar-TV Guide  and Macrovision. The aggregate cash consideration to Gemstar-TV Guide shareholders will not exceed approximately $1.55 billion.

At the close of the deal, Macrovision stockholders will own 53% of the new company, while former Gemstar-TV Guide stockholders will own 47%. The deal, subject to shareholder approval by both companies, is expected to close in the second quarter of 2008.

The cash portion of the deal will be funded by available cash and $800 million in debt financing that will include a $650 million term loan and a $150 million bridge loan that the company expects to refinance with bonds. The company has financing commitments from JP Morgan and Merrill Lynch.

“We are adding a sizable amount of debt to our balance sheet,” Macrovision chief financial officer James Budge said on a conference call. “However, we believe that purely on an operating-cash-flow repayment model, we will have ample capacity to service the debt and reduce it to zero as early as 2011 without requiring the sale of any particular asset.”

Budge added that the company expects to generate more than $200 million in operating cash flow in 2008 and, based on the combined current businesses, he sees double-digit revenue growth rates of 10%-15% annually over the next five years.

The per-share value of the deal for Gemstar-TV Guide shareholders is a 29% premium over the 10-day average close for the stock prior to its July 9 announcement that it was seeking strategic alternatives. Gemstar-TV Guide, which is 40% owned by News Corp., closed Thursday’s session at $5.98 per share. Macrovision closed Thursday at $25.99.

The new company will be headed by Macrovision president and CEO Fred Amoroso. Budge will assume the same role at the combined entity. Both Gemstar-TV Guide CEO Rich Battista and CFO Bedi Singh will leave the organization at the close of the deal.

The new company’s board will include four members selected by Macrovision and three by Gemstar-TV Guide.