Macrovision/Gemtar: Both Stocks Extend Slide; Can They Possibly Win Shareholder Approval?
Posted by Eric Savitz
Shares of both Macrovision (MVSN) and Gemstar-TV Guide (GMST) have extended their losses in the wake of their extremely poorly received announcement of plans to merger the two companies.
The Street simply hates this deal. Gemstar holders think they are being ripped off. Macrovision holders are in a panic about the lack of obvious financial synergies in the deal, and the increased level of risk. (The company is taking on $800 million in new debt to finance the deal, for instance.) Risk arbs seem concerned that the deal can’t be completed given the sharp post-announcement slide in the shares of both stocks.
There were a flurry of research notes on the deal this morning, and they were mostly downbeat on the two stocks. Here’s a roundup:
Kaufman Bros. analyst Todd Mitchell cut his rating on GMST to Hold from Buy; his price target goes to $6 from $8. “We think this deal is ill-conceived, and we recommend shareholders reject it as it is proposed.” On the other hand, he thinks holders have over-reacted, and that selling now “is a mistake.” He complains that the deal offer effectively no takeover premium to GMST holders, and he says that the structure of the cash/stock mix in the deal failed to protect GMST share from the deflation of MVSN’s stock price. He also wants to know is News Corp. (NWS), which has a 41% stake in GMST, is going to take cash or stock for its shares.
Goldman Sachs’ Sasa Zorovic today cut his price target on Macrovision to $27 from $30. He says the proposed deal “significantly increases the risk profile of the investment in Macrovision.” Zorovic adds that the deal appears to be 10%-15% dilutive to MVSN holders, and says “top-line synergies are likely to remain limited.”
Deutsche Bank’s Brian Thackray chopped his target on Macrovision today to $23 from $37. “We are not clear on why the company felt it needed to make this transaction now and expect it to be an overhang for a while if the deal goes through.” He adds that given the reaction of the stock, and conversations with holders, there is a risk the deal is rejected by MVSN holders. (The deal needs 51% approval by MVSN holders, and 67% from GMST holders.)
Natixis Bleichroeder’s Alan Gould today dropped coverage of Gemstar. “We assume the large logical strategic buyers - Google, Microsoft, Comcast, Cisco, etc. - all looked at the deal and decided to pass,” he wrote. “We surmise that the 41% shareholder, News Corp., agreed to vote in favor of the deal because it was the best/only deal offered.” Gould says the backing from News Corp. makes it likely GMST will win backing from its shareholders, but he says that “the bigger question” is whether MVSN will get holder support for the deal.
Maxim Group’s Mark Harding downgraded Macrovision today to Hold from Buy, citing concerns about both dilution and the $800 million in debt the company is taking on to do the deal.
Jefferies & Co.’s Ross MacMillan cut his target on MVSN to $23 from $28, and repeated his Hold rating. He thinks the deal would be 30%-plus dilutive to MVSN’s earnings.
Morgan Joseph’s David Kestenbaum actually upgraded GMST today to Buy from Hold. He notes the wide arb spread on the deal, and contends the stock is worth $5.95 a share on a sum-of-the-parts basis. He contends that if the deal closes, MVSN is likely to sell off both TV Guide magazine and the TV Guide Channel.
This morning, Macrovision shares are down 97 cents, or 4.75%, to $19.47, while Gemstar shares are down 30 cents, or 6%, to $4.69. Since the deal was announced, Macrovision shares are down 25%, and Gemstar shares are off 22%.
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Shareholders are foolish and just plain stupid for selling their GMST shares. You are being bought out at $6.35. Rate cut tomorrow. Healthier debt markets again. Take the cash you bumbling idiots!!!
Comment by John Smither - December 10, 2007 at 7:37 pm
Todd Mitchell of Kaufman Bros. is correct in analyzing the crux of this deal. Based on the 8-K filings, News Corp owns 41% of GMST and will vote in favor of this acquisition by MVSN. If NWS accepts stock at .2548 of the newco, then the remaining shareholders of GMST can elect to receive cash of $6.35 per share without triggering the oversubscription proration as the $1.55B to $1.6B is sufficient to cover the cash payout to the remaining 59% holders of Gemstar.
Comment by Hughiee - December 11, 2007 at 2:44 am
I agree with the comment that shareholders are just plain spooked to sell their GMST shares at todays price. But what are they afraid of? If Macrovision shareholders reject the deal, will GMST shares recover immediately? If they will how can we lose? If Macrovision shareholders approve the deal we get $6.35, so what’s the problem? Why is everyone panicking?
Comment by John Plohman - December 11, 2007 at 10:35 am
John, the deal could fall through if GMST or MVSN shareholders rejects the proposed takeover, or MVSN can not secure the $800M to make this deal work. However, if the Agreement with News Corp stipulates that it will vote in favor of the deal and take stock for its 41% interest in GMST, then the 59% shareholders electing to take cash will receive $6.35 when and if the deal closes.
Comment by Hughiee - December 11, 2007 at 10:48 am
Say News Corp is in favor of the deal and takes the $6.35 cash/stock. Will other GMST stockholders have the option to take the cash over the stock or will they be stuck getting MVSN stock? What happens if all GMST shareholders want cash? Who decides which shareholders get what?
Comment by Shawn - December 11, 2007 at 11:09 am
Say all shareholders including NWS elect to take cash, then the proration clause kicks in to allocate the $1.55B to all the issued and outstanding shares of GMST. Each share is entitled to approx. $3.60 in cash and the rest in stock based on ratio of .2548 of newco/mvsn. The worse case is 55% in cash and 45% in stock proration. One would surmise that Macrovision and Gemstar have thought this through the past five months in structuring this deal and securing financing of $800M with Morgan Stanley and ML and obtaining the signed Agreement with News Corp before announcing this $2.8B acquisition.
Comment by Hughiee - December 11, 2007 at 12:32 pm