Macrovision Twists in GemStar Bid

The digital media shop takes on big debt and investor ire in its bid for TV Guide.
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In a bit of a Hail Mary,

Macrovision

(MVSN)

has thrown together a proposed $2.8 billion cash and stock offer for

GemStar-TV Guide

(GMST)

.

The Santa Clara, Calif., digital media anti-piracy shop says it will pay shareholders $6.35 a share or a quarter share of Macrovision for each share of GemStar-TV Guide to acquire the interactive video programming menu specialist. Macrovision says it will pay no more than $1.55 billion in cash, making the deal 56% cash and 44% stock.

Shareholders didn't exactly warm to the deal. In early trading, investors knocked Macrovision shares down 27% Friday, effectively erasing $332 million from the value of the deal in the wake of its announcement.

Macrovision, which has only $180 million in cash on its books, says it will have to raise $800 million through debt offerings. The company says that if it is not successful in getting enough in loans, it has secured a backstop financing commitment from JPMorgan.

The company says it has ample cash generation to be able to retire the debt by 2011.

The offer represents a slight premium to GemStar-TV Guide's closing price Thursday of $5.98. The cash portion is about 6% more and the stock component is about 11% higher than Thursday's close.

"We believe that the combined entity, with its complementary technologies, customers and global presence has the potential to redefine the consumer entertainment experience and drive significant additional stockholder value," says GemStar CEO Rich Battista.

Macrovision's management team will largely run the new company once the deal is closed. Battista and GemStar CFO Bedi Singh will be leaving the company.

GemStar-TV Guide was put on the block by 43% stakeholder

News Corp.

(NWS) - Get Report

in July. The Los Angeles-based media guide outfit hired UBS as a financial adviser to help it explore strategic alternatives.

But GemStar investors were not exactly pleased with the terms of the deal and the extensive debt required to make it happen.

One observer, who holds no position in either company, said that GemStar shareholders obviously wanted an all-cash deal, not stock. For example, the money manager says, "if they got

Microsoft

(MSFT) - Get Report

stock, that is a cash equivalent, and liquid; Macrovision, not so much."

Executives on a conference call warned that the value of the deal is likely to fluctuate with the price of Macrovision.

GemStar shares fell 76 cents, or 13%, to $5.22, and Macrovision dropped 27% to $18.99.