With Spyglass, OpenTV Buys Access
By MIKE FARRELL -- Multichannel News, 4/2/2000 8:00:00 PM
Interactive-television software provider OpenTV Inc. is buying Web-browser developer Spyglass Inc. in a $2.5 billion stock swap that could help OpenTV with U.S.-based cable operators, including Cablevision Systems Corp.
The deal will give Spyglass stockholders about 18 percent ownership in the company. More importantly, it gives OpenTV-which has been one of the highfliers in the Internet arena-a sorely needed Internet component that should make its technology more attractive to domestic cable operators.
Although OpenTV's technology is installed in about 6.1 million set-top boxes, that penetration is mostly in Europe and Asia. The company hasn't had much luck with U.S. cable operators, which have lagged behind their foreign counterparts in deploying interactive services.
But the Spyglass acquisition brings two key components to the OpenTV platform-Internet Web-browsing capability and a wireless technology that will allow cable customers to access wireless services via their set-top boxes.
Spyglass was one of the pioneers in Web-browser technology-it licensed the "Mosaic" search engine, one of the first for the Internet, from the University of Illinois-and the company has strategic relationships with several set-top manufacturers including Motorola Inc., Thomson Consumer Electronics and Sony Corp. Sony reached an agreement late last year to sell $1 billion worth of digital set-top boxes to Cablevision.
In a conference call with analysts, OpenTV CEO Jan Steenkamp said Spyglass' strategic relationships with Sony and Cablevision could bode well for his company.
He also pointed to Motorola Broadband Communications Sector's "DCT-2000" and "DCT-5000" set-tops.
"The Motorola relationship is very key to us," Steenkamp said. "Spyglass forms the core element of the relationship [with] the DCT-2000 and DCT-5000. It's a great opportunity to extend our reach."
But investors, at least initially, didn't see it that way. OpenTV shares were hammered March 27, dropping by nearly $40 per share to $129.06. Although they rebounded slightly March 28, to $129.38, OpenTV shares plummeted in early afternoon trading the next day to $114.06.
Investors were initially more optimistic about Spyglass, driving its stock up 18 percent to $82.38 March 27 and continuing the rise to $85.13 the next day. The stock dropped $9 per share in afternoon trading March 29, though.
The deal calls for Spyglass shareholders to get 0.7236 shares of OpenTV stock for each share of Spyglass. The deal values Spyglass at about $122.28 per share, more than three times the company' s trading price just one month ago.
Steenkamp justified the price, citing high valuations in the Internet space. He added that the company will focus on "educating" investors as the deal draws to a close.
Also adding to the high price was the relatively small number of companies that possess similar technology to Spyglass.
"It's important to know that we looked around for companies that have this leading technology. There were very few," he said. "By accelerating the technology, we see synergistic growth in revenue. We can move very rapidly in this field."
CIBC Oppenheimer Corp. broadband/new-media analyst John Corcoran agreed that OpenTV seems to have paid a hefty price for Spyglass, probably rationalizing that it can create new services.
"I can't say that OpenTV got a bargain," Corcoran said.
He added that Spyglass would bring research-and-development and engineering skills to help craft a strategic vision for future services.
Steenkamp remains CEO of OpenTV. After the merger, Spyglass chairman and CEO Douglas Colbeth will be executive vice president of corporate development for OpenTV's new wireless unit. Spyglass president Martin Leamy will be general manager of a new OpenTV consulting-services unit.
Spyglass and OpenTV by the Numbers (Figures in Millions, Except Per-Share Amounts)
| FY' 99 | FY' 98 | |
|---|---|---|
|
OpenTV |
||
|
Revenue |
$26 |
$9.5 |
|
Net Income (Loss) |
($90.4) |
($14.3) |
|
Net Income (Loss) Per Share |
($4.18) |
($0.43) |
|
Spyglass |
||
|
Revenue |
$29.6 |
$21.2 |
|
Net Income (Loss) |
($1.9) |
($10.0) |
|
Net Income (Loss) Per Share |
($0.12) |
($0.69) |
|
Source: Company financial statements |
Spyglass on the Rise
| Stock Price | 3/24 | 3/27 | 3/28 |
|---|---|---|---|
|
Spyglass |
$69.88 |
$82.38 |
$85.13 |
|
OpenTV |
169.00 |
$129.06 |
$129.38 |
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