SAN FRANCISCO -- Investors and analysts were so unsettled by Macrovision's ( MVSN) announced merger with Gemstar-TV Guide ( GMST) that one sell-side analyst pulled his rating on Macrovision late Friday, while others noted the risks of the deal.

Noting that Macrovision had already announced two small acquisitions within a month of the deal, William Blair analyst Ralph Schackart called it a "bet-the-company transaction" when announcing his decision to suspend the rating.

He put integration risks at the top of his list of concerns for Macrovision, a developer of software that is sold to movie studios and video device manufacturers to protect movies against piracy. Macrovision is an investment-banking client of William Blair.

Macrovision, which fell 21.4% on Friday, declined another 4.45%, or 91 cents, to $19.53 in early trading on Monday. Meanwhile, Gemstar, which slipped 16.6% on Friday, declined another 6.81%, or 34 cents, to $4.65 in early trading on Monday

Macrovision investors who had had "a good feeling about the near-term numbers" fled the stock over disappointment that healthy returns will be delayed for years, said Piper Jaffray analyst Mike Olson.

Olson, whose firm makes a market in Macrosvision, notes the deal presents "huge potential opportunities, but huge potential questions."

Santa Clara, Calif.-based Macrovision is paying $2.8 billion for Gemstar-TV Guide, which is based in Los Angeles. Under the terms of the deal, the companies will become subsidiaries owned by a holding company under Macrovision leadership.

The combined entity is expected to generate $914 million in revenue in 2008 and net income, excluding items, of $186.3 million. Gemstar is expected to contribute about 70% of the top line.

The deal calls for Gemstar shareholders to receive $6.35 per share or 0.255 shares of Macrovision stock. The deal, which is expected to close by June 2008, will be paid with cash from both companies and up to $800 million of debt financing.

News Corp. ( NWS), which owns 40% of Gemstar, has agreed to the deal, said Richard Battista, CEO of Gemstar.

Together with Macrovision's past acquisitions All Media Guide (AMG) and Mediabolic, Gemstar brings a more diversified revenue stream and strong cash flow, said Cowen analyst Robert Stone in a Friday note. Macrovision is an investment banking client of Cowen.

Macrovision CEO Fred Amoroso plans to deliver Gemstar's TV Guide content and AMG's searchable music, video and games database through Mediabolic's middleware with Macrovision's content-protection features. The platform would give consumers a full listing of content available to any device connected via cable, satellite and mobile operators.

Adding Internet content such as YouTube videos to the mix is an advantage that other companies will find hard to replicate, given that Macrovision's middleware functionality is being built into devices, Amoroso said on a conference call with analysts. He said delivering interactive advertising is another growth opportunity.

The management team's experience, including Amoroso's track record running global services in Asia for IBM ( IBM), is within "the bandwidth of everybody in the management team," Amoroso said.

"Macrovision could be the next hub for how we consume digital media. That's the dream here," said Olson, the Piper Jaffray analyst.

Olson, though, said some cable operators may create their own software, and the company will have to contend with major competitors, such as Microsoft ( MSFT), which is positioning its Media Center to be the digital entertainment hub in the home.

Macrovision CFO James Budge projected a 10% to 15% growth rate for the combined company over the next five years. "Our target Ebitda margin is above 40%, and we expect to generate over $200 million in operating cash flow in 2008," which will go to pay down the debt, he said on the call.

Analysts project combined earnings before interest, taxes, depreciation and amortization of $266 million in 2008, according to Thomson Financial.

Budge said the deal would create "reasonably significant" cost synergies.

However, Schackart said the deal is "better suited for a private company that has the time and risk tolerance for integration."

As good as the team's experience is, the integration risks loom large, Schackart wrote. "Eight out of 10 big deals do not work."

He would consider reinstating his rating should Macrovision land some big movie studio contracts for bundled content protection software -- the company's traditional business line.