The Santa Clara, Calif.-based Rovi said Friday it planned to acquire TiVo for $10.70 per share in cash and stock -- a 13.6% premium to TiVo's Thursday closing price. The companies expect to close the transaction in the third quarter of 2016.
TiVo shares were up 5.7% to $9.96 on Friday morning, with Rovi shares down 0.29% to $17.30 after opening the day up more than 4%.
Rovi is getting a good deal on TiVo, said Richard Tullo, director of research at Albert Fried & Co., via phone Friday. Tullo said he anticipated that TiVo would fetch about 10% to 15% higher in an acquisition, but acknowledged that the probability of another bidder emerging is quite low.
"The deal does provide [TiVo] shareholders with some upside," Tullo added. In fact, Tullo had told TheStreet's sister publication The Deal in July 2014 that TiVo ought to be taken out because it would be better as part of a bigger company than on its own, and that it would be an interesting buy for either Cisco Systems (CSCO) or Apple (AAPL) .
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The combined company, which will be called TiVo, will be worth an estimated $3 billion in combined IP licensing revenues and past damage awards. It will serve nearly 500 service providers, such as AT&T (T) and América Móvil (AMX) , across the globe, adding more than 10 million TiVo-served households to the approximately 18 million households using Rovi program guides worldwide. It will also have more than 6,000 issued patents and pending applications in its intellectual property portfolio.
While a lesser-known company, Rovi is one of the largest owners of patents for digital entertainment devices. Patent litigation is a part of both companies' business model and serves as a source of revenue.
"We believe the rationale for the deal makes sense, with overlapping customers and organizational goals, and synergies that could make the combined business more profitable," wrote Piper Jaffray analyst Michael Olson in a note Friday.
Executives anticipate $100 million in cost synergies from the deal, 65% of which will come in the first year, and for the deal to be earnings-per-share accretive within 12 months of the deal closing. Within three years, revenues for the combined company are expected to grow to $1 billion.
Olson noted investors may have some cause for caution given what he called Rovi's "checkered" history of acquisitions. "Rovi will need to address concerns raised after a high-profile acquisition did not work out," he wrote, citing Rovi's 2011 acquisition of Sonic Solutions and DivX for $720 million that did not pan out (Rovi sold DivX in 2014 for "up to $75 million"). "We believe some investors remain apprehensive regarding Rovi's acquisition history."
Rovi also released first-quarter financials on Friday, reporting a loss of $17.7 million for the period, or 22 cents per share. Earnings, adjusted for amortization costs and non-recurring costs, were 34 cents per share and above analysts' estimates of 27 cents per share.
The company was originally slated to report earnings on Thursday but rescheduled the call for Friday morning, in tandem with its acquisition announcement.
"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 Tom Carson, CEO of Rovi, in a statement.