TiVo Inc.,known for its signature DVR, plansto merge with Rovi Corp.in a roughly $1.1 billion cash-and-stock deal that analysts and executives saidshould provide some synergies as well as create a larger combined patent portfolioto further research and development.
Speaking during an April 29 conference call, executives toutedthe transaction as creating the largest market entertainment software provider,bringing together TiVo's roughly 10 million subscribers with Rovi's 18 million,and combining R&D opportunities. The two companies together invested more than$1.5 billion in R&D over the past decade, resulting in more than 6,000 patentsand pending applications.
"We believe that our two companies' expanded reach and deeperproduct and [intellectual property] portfolios will allow us to grow faster andgenerate even greater value for all Rovi stockholders," said Rovi Presidentand CEO Tom Carson during the call. Carson will lead the combined company, whichwill operate under the TiVo brand. The transaction is expected to close in the thirdquarter, subject to customary conditions, including stockholder approval.
Asked by an analyst about the potential for overlapping productsor services, Carson said each company offered "pretty clear, discrete technologies"and he expected to find opportunities to upsell TiVo products to Rovi's existingcustomer base.
"I think there's a really nice opportunity to get incrementalrevenue because of the products that TiVo has that we can take into our legacy 18million base," Carson said.
Executives said the companies have been in discussions aboutthe potential deal with some of their large TV operator clients and they expressedconfidence that the merger would be met with approval from Rovi and TiVo customers.Rumors about the potentialfor a Rovi-TiVo merger have been circulating for more than a month.
"[The TV operators] wanted for years for us to find waysto develop more scale and be more influential in the marketplace, and I think thatthis is a great opportunity to do that and serve them in an even broader capacity,"said Naveen Chopra, TiVo's interim CEO and CFO.
Several analysts seemed cautiously optimistic on the deal. Ina research note, Pacific Crest Securities analyst Andy Hargreaves wrote there wasmerit to the case that the deal would provide some R&D and other synergies,though he expected that most savings would be in overhead and administrative costs.
"There may also be revenue synergies from combining thecompanies' product portfolios, but we believe these would be modest, as neithercompany has been particularly successful at selling software outside of the coreguide," he said.
But he also said the deal announcement came at an odd time giventhe renewal deals Rovi is negotiating with ComcastCorp. and DISH NetworkCorp.
Jan Dawson, chief analyst at Jackdaw Research, said that thedeal combines Rovi's strength as a backend brand with TiVo's consumer appeal.
"So that's complementary, but it's also a big change tohow [Rovi has] sold things historically," Dawson said in an interview. "Thereare some fairly different things coming together here and there's certainly somework to be done and reconciling those and figuring out where they have duplicateassets."
SNL Kagan analyst Mike Paxton noted the pressure that Rovi has faced from activist investors in recentquarters, largely due to a lack of scale and recent difficulties in contract negotiations.The new company would not likely compete with the likes of Alphabet Inc.'s Android TV offered or Comcast's X1 TriplePlay, but its greater scale would help.
"They have enough pieces of the jigsaw puzzle to make themmore formidable as an operating company and as somebody you don't want to mess withby stepping on their patents or not renewing their license," he said.