Advanced Television

Rovi to acquire TiVo in $1.1bn deal

April 29, 2016

Some five weeks after reports first emerged that entertainment discovery specialist Rovi was planning to acquire advanced television technology specialist TiVo the pair have confirmed a cash and stock deal of approximately $1.1 billion (€0.96bn).

The new company combines two media and entertainment technology innovators with complementary products, services, and intellectual property assets and a common mission to write the next chapter of the consumer entertainment experience. The company will continue to be led by Tom Carson, current CEO of Rovi, and upon closing of the transaction will adopt the iconic TiVo brand as the new company name.

“Rovi’s acquisition of TiVo, with its innovative products, talented team, and substantial intellectual property portfolio, strengthens Rovi’s position as a global leader in media discovery, metadata, analytics, and IP licensing,” said Carson. “It’s an exciting time as the media and entertainment landscape undergoes a significant evolution. The combined capabilities of TiVo and Rovi place us in a tremendous position to extend services across platforms and to a customer base that includes traditional, over-the-top and emerging players across the globe. By working together, Rovi and TiVo will revolutionise how consumers experience media and entertainment and at the same time build value for our stockholders.”

“We’re proud of TiVo’s strong innovation history and of the ongoing efforts of our team to provide best-in-class products for our loyal consumer and service provider customers,” said Naveen Chopra, Interim CEO and CFO of TiVo. “This transaction is the culmination of those efforts and the logical next step for TiVo. In joining forces with Rovi, our customers, employees and stockholders will benefit from being part of a more diversified industry leader with significantly greater market opportunities. Our combination creates a more influential global player with a commitment to product innovation, which will be incredibly well positioned to redefine television.”

Natural Synergy, Strong Business

This transaction brings together the technology and products required to achieve the company’s strategic goals and deliver substantial stockholder value.

  • TiVo’s leadership in user experience and content discovery brings together traditional television, OTT and on-demand content into one experience across devices
  • Rovi’s strength in guides, personalization, advertising, analytics and cloud services
  • On a pro forma basis, for the twelve months ended December 31, 2016, the combined company is estimated to have more than $800 million in revenue after purchase accounting adjustments
  • The combined company is expected to realize at least $100 million in annual cost synergies, with 65 percent of these synergies recognized in the first 12 months
  • The expected synergies are in addition to TiVo’s targeted current year $32 million Adjusted EBITDA increase from restructuring and margin improvements
  • The transaction is expected to be accretive to Rovi’s Non-GAAP EPS within the first 12 months post-close

Shared Customers, Global Reach

Rovi and TiVo serve many of the largest pay-TV operators both in the U.S. and around the world.

  • Combined benefits include enhanced global reach, serving nearly 500 service providers across countries, adding more than 10 million TiVo-served households to Rovi’s current base of approximately 18 million households using Rovi guides worldwide
  • Solutions will be integrated to deliver enhanced customer value and to strengthen relationships with top partners

Unique Company, Further Innovation

  • The transaction will create a company with a large presence in the consumer, consumer electronic, service provider and web-scale marketplaces
  • TiVo has played an iconic role in ushering in over a decade of rapid change in how consumers find, select, and watch television. These consumer innovations have also been successfully deployed for the benefit of service providers around the world
  • Rovi and TiVo have invested over $1.5 billion in R&D over the past 10 years. Few companies have had a greater impact on the evolution of TV and video.
  • This powerful combination of consumer innovation and service provider distribution will continue to be a unique asset of the combined company and will be further enhanced by Rovi’s prowess in areas like metadata, conversational search, and data analytics

Strong Intellectual Property Portfolios and Licensing Business

Together, Rovi and TiVo have worldwide portfolios of over 6,000 issued patents and pending applications worldwide.

  • Both Rovi and TiVo have been successful in monetizing their innovations and intellectual property, with more than $3 billion in combined IP licensing revenues and past damage awards
  • TiVo’s IP assets, combined with Rovi’s recent OTT partnership with Intellectual Ventures, further strengthens the company’s collective position as a leading provider of intellectual property in media and entertainment discovery

The Most Powerful Analytics in the Industry

The combined company will offer the industry’s most powerful analytics platform dedicated to media and entertainment, helping service providers and media companies strengthen consumers’ connections to the content they love.

  • Industry leading monetisation products for services providers, advertisers and media companies, with access to data from multiple platforms including television, mobile and cloud services
  • TiVo’s unique cross-device viewership data merged with Rovi’s analytics tools will enable better targeting of media spend, improved advertising inventory yield and the creation of targeted advertising capabilities for service providers, advertisers and media companies
  • TiVo’s cross-device viewership data will enhance Rovi’s Operator Insights and Subscriber Analytics tools to give service providers more visibility and more precise methods to improve customer retention and manage churn

Transaction Terms

  • Rovi will acquire TiVo for $10.70 per share in cash and stock, approximately $1.1 billion in aggregate consideration
  • Rovi will pay $2.75 per share in cash, or approximately $277 million, subject to adjustment as described under the collar mechanism below
  • The remainder, $7.95 per share, will be paid in shares of common stock of a new holding company that will own both Rovi and TiVo
  • Number of shares to be issued to TiVo stockholders will be calculated based on Rovi’s average VWAP over the 15 trading days ending on the third trading day prior to close (the Average Rovi Stock Price) and subject to the collar mechanism described below
  • Rovi stockholders will own one share of the new holding company for each share of Rovi common stock owned as of the closing
  • Offer represents a premium of approximately 40 percent over TiVo’s closing price of $7.66 on March 23, 2016, the last trading day prior to media speculation about a possible transaction
  • Stock component of the consideration is expected to be a tax-free exchange to TiVo stockholders
  • Cash consideration will be financed from cash on hand in the combined company, and the combined company is expected to have $150 – $270 million on hand at closing

The Board of Directors of the combined company will include participation from TiVo’s current Board.

The boards of both companies have approved the transaction. The transaction is subject to customary closing conditions, including approval by TiVo’s and Rovi’s stockholders at special meetings to be held in connection with the transaction as well as clearance under the Hart-Scott-Rodino Antitrust Improvements Act. The companies believe that they will be able to obtain the requisite clearances on a timely basis and the transaction is expected to close in Q3 of 2016.

According to Merrick Kingston, principal analyst, IHS Technology, the acquisition is partly a tale of strategic repositioning, and partly a tale of boosting a plateauing business.

Over the past two years, both companies have faced rather strong headwinds. Rovi has struggled to secure major operator deployments, has seen its service provider IP-licensing business flat-line, has endured a sustained decline in its consumer-electronics licensing business, has experienced declining sales, and — by losing a high-profile infringement claim against Netflix — has had five key patents invalidated (encompassing content search, content filtering, and content recommendation based on viewing history).

TiVo’s consumer-hardware business is declining, the company has also struggled to amass new, large-scale operator deployments, and the company has witnessed its own IP-licensing fortunes plateau. Moreover, TiVo expects its entire IP-licensing business to contract by two orders of magnitude, and decline into irrelevance, by the mid-2020s.

The good news is that the two firms collectively preside over an invaluable set of media company relationships, and most importantly, they have at their disposal an ensemble of products with capabilities and underlying technology that are widely perceived to be peerless. Rovi possess a superlative search-and-recommendation product, has made major investments in its set-top based consumption analytics platform, and has a stranglehold on the content metadata that huge swaths of the media industry rely on to offer personalisation and recommendation features. TiVo’s UI is the standard-bearer for seamlessly navigating walled-garden and third-party OTT content. The company’s own recommendation platform is strong, and the firm’s subsidiary – TiVo Research – already provides multi-device, cross-platform audience data and consumption analytics to agencies, advertisers, and programmatic ad exchanges.

These complementary strengths will allow the combined entity to pursue the following three overarching opportunities:

1. Acquisition provides the means to address major changes in the types of technologies that media companies demand. Operators in particular cannot continue to rest their future fortunes on the sale of large, monolithic channel bundles. The structure of media distribution has changed, and with it the role of uncertainty. In the face of structural demographic change, new consumption behavior, the oversupply of choice, and the trend toward micro bundling, pay TV will require unprecedented insight into its audience: what it wants, to whom it should sell, and what it should sell. The future pay TV business will be anchored in analytics, and the new TiVo will be uniquely positioned to address this shift in technology demand.

2. The new TiVo will possess a client footprint of the highest calibre. Spanning Dish Network, DirecTV, AT&T, Verizon, Time Warner Cable, Com Hem, Korea Telecom, Samsung, LG, Panasonic, SK Broadband, ONO, Sharp, and Virgin Media and others, the new entity’s search, recommendation, UI, metadata, analytics, and advertising business will be well equipped to generate new value from an addressable market that is so strong.

3. The deal remains predicated on the companies’ conviction that their combined intellectual property portfolio will bolster a flagging revenue stream. This conviction shows chinks in its armor, however. Over the last eight quarters, Rovi’s average quarter-over-quarter IP-licensing income has contracted by 3 percent. TiVo largely anticipates that its licensing income will disappear altogether in 2020. While Rovi announced a major licensing deal with Intellectual Ventures (IV) this year – effectively becoming IV’s exclusive media-and-entertainment focused channel partner – the agreement is largely orthogonal to the TiVo acquisition. It is difficult to foresee how TiVo’s patent portfolio will materially change Rovi’s IP-licensing opportunities.

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