Shares of TiVo Inc. TIVO jumped more than 23% on Mar 24 on rumors hinting at its possible acquisition by Rovi Corporation ROVI, which offers interactive programming guides to pay-TV companies and smart-TV manufacturers.
Citing people familiar with the matter, The New York Times Company NYT reported last Thursday that TiVo is in advanced talks with Rovi regarding the sale. Although the price is yet to be determined, it is likely to be a cash-stock deal.
Per the New York Times report TiVo shareholders would get 30% of the new company’s shares post the completion of the deal. Notably, the company has a market capitalization of slightly over $750 million based on the closing price as on Mar 23.
Rovi provides a set of solutions that allow businesses to protect, enable and distribute digital goods to consumers and help consumers discover and manage digital media across multiple channels. The company, formerly Macrovision Solutions Corporation, is focused on revolutionizing the digital entertainment landscape through its innovative offerings.
On the other hand, TiVo pioneered a brand new category of products by developing the first commercially available digital video recorder. However, over the years, the company has expanded its capabilities beyond hardware sales and patent licensing to online subscription services. Moreover, the company’s strategy of providing next-generation features which include cloud-platform and mobile apps to cable service providers is likely to boost revenues in the long run.
However, the two companies have been witnessing severe competition from Internet video providers such as Alphabet’s YouTube, Netflix, Apple AAPL and Roku.
Apart from this, TiVo and Rovi are considered to be arch rivals and so, a merger will enhance their profitability. It is to be noted that the combined company will have over 6,000 issued and pending patents offering it a competitive advantage against media and tech giants.
Conclusion
In our opinion, the deal would be more beneficial to TiVo as it has been struggling to maintain the bottom line amid changing industry dynamics. Based on the Mar 23 closing price, the stock lost about 33% since its 52-week high of $11.40 attained on Apr 28, 2015.
However, it is too early to say whether the deal will materialize as the price has not been fixed yet.
TiVo currently carries a Zacks Rank #2 (Buy).
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