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Rovi To Acquire Sonic Solutions For $720 Million

12/24/2010 6:47 AM Eastern

Rovi, stirring over-the-top TV and movie content into its lineup, announced it has reached an agreement to buy digital-video playback and distribution company Sonic Solutions for $720 million in stock and cash.

Sonic's RoxioNow provides more than 10,000 movies and TV programs, which are accessible through broadband-connected consumer electronics devices such as digital TVs, Blu-ray Disc players and mobile phones. The company's DivX video-player software is distributed in over 350 million CE devices, and the software has been downloaded more than 100 million times per year and 500 million times to date.

Best Buy's CinemaNow, powered by Sonic SolutionsWith the deal, Rovi will mix Sonic's video playback and distribution offerings with its own guide software and metadata services -- which will create a more holistic entertainment solution as well as expand Rovi's advertising opportunity, the company said.

"Rovi and Sonic share a vision for the future of digital entertainment and how to deliver the best consumer experience possible," Rovi president and CEO Fred Amoroso said in announcing the deal late Wednesday. "Together, we believe the two companies will be able to address the expanding digital entertainment market with unique capabilities that will bring enhanced value to consumers."

The companies said RoxioNow is expected to be on more than 30 million connected devices by June 2011. Best Buy is among Sonic's customers for the service; the retailer's CinemaNow video-on-demand service, powered by RoxioNow, is available on PCs, Blu-Ray Disc players and HDTVs.

Sonic has distribution deals with studios including the Walt Disney Co., Paramount Pictures, Warner Bros., Universal Pictures, 20th Century Fox, Sony Pictures Entertainment and Lionsgate.

Already, Rovi's TotalGuide for CE devices is integrated with RoxioNow; in the future, Rovi expects to power RoxioNow's user experience with the same Web services that power TotalGuide. Rovi believes this integration will result in accelerated uptake of over-the-top premium content.

Santa Clara, Calif.-based Rovi changed its name from Macrovision Solutions last year, after a string of acquisitions. The biggest was its $2.8 billion deal for Gemstar-TV Guide International, the supplier of interactive program guides and data.

In addition, Macrovision in December 2007 bought All Media Guide Holdings, a provider of information databases and metadata for entertainment products including music and movies, and acquired the assets of Muze, a provider of entertainment information products and discovery services.

Rovi's acquisition of Sonic is expected to close in the first quarter of 2011, subject to customary closing conditions and regulatory approvals, as well as the valid tender of a majority of the Sonic's outstanding shares.

Rovi said it will use cash on hand to fund the cash portion of the deal and that the transaction is not contingent on any debt financing. Separately, however, Rovi intends to raise approximately $500 million of non-convertible term loan financing, which it expects to use for general corporate purposes, including the repurchase of its common stock and its outstanding convertible notes depending on market conditions. Rovi's board of directors has authorized up to $400 million in stock purchases and up to $200 million in purchases of Rovi's outstanding convertible notes.

The deal is expected to generate over $15 million in synergies in 2011 and be $0.05 to $0.10 accretive to 2011 adjusted pro forma income per common share, Rovi said.

Also Wednesday Rovi updated its estimates for 2010 to a narrower range, of $538 million to $542 million for revenue and $2.08 to $2.12 adjusted pro forma income per common share. Analysts were expecting revenue of $540.5 million and earnings of $2.08 per share for 2010, according to Thomson Reuters.

Sonic was advised in the deal by William Blair & Company LLC and Morrison & Foerster LLP. For Rovi, Cooley LLP acted as legal adviser and JPMorgan acted as financial advisor and delivered a "fairness opinion" to the board of directors.

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