Comcast, Cox Buying Liberate

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Eager to jump-start interactive applications on low-end digital set-tops, Comcast Corp. is buying software provider Liberate Technologies in conjunction with Cox Communications Inc.

The deal is valued at about $82 million, Liberate said. The buyer is a new joint venture of the two MSOs called Double C Technologies.

According to Liberate, the joint venture will receive substantially all of its assets, including patents and other intellectual property, and will assume certain limited liabilities related to Liberate's North American business. Liberate will receive cash consideration of approximately $82 million.

The parties will cross-license technology and intellectual property to one another following the closing for purposes of the continued conduct of their respective businesses.

Cox will hold a minority investment, the companies said.

Liberate is developing a software platform intended to provide cable operators with a flexible platform to add new digital-cable products and applications. This platform will become increasingly important as digital-cable products continue to evolve and interactive features become more widespread.

Sources in the cable-software arena said Comcast wanted a quick way to add interactivity across the lowest common denominator of its digital set-top platform, which would be the Motorola Broadband Communications Sector “DCT-2000” box.

Cable companies expect satellite-TV providers to emphasize interactive-TV applications in the coming year, especially with top direct-broadcast satellite provider DirecTV Inc. now controlled by News Corp. That media giant’s U.K. satellite platform, British Sky Broadcasting Group plc, has much interactivity.

"Comcast believes strongly in the future of interactive television and the need for customers to have TV on their terms. This acquisition, along with our earlier investment in Guideworks and our innovative video-on-demand platform, will enable Comcast to move faster toward creating a more interactive television experience," Comcast executive vice president of new business development Steve Silva said in a press release.

"Purchasing Liberate's North American assets will give us greater control over the software platform that will help to drive new features that distinguish us from other providers, as well as position us to be able to deliver new services that will be enabled by OCAP-compliant software in the future," he added.

OCAP is the OpenCable Applications Platform, intended to be a standard for U.S. interactive-TV development. Guideworks is a Comcast joint venture with Gemstar-TV Guide International Inc. to develop advanced interactive programming guides.

"The purchase by industry leaders Comcast and Cox of our North American business demonstrates the strategic importance of the technology we have designed and built," Liberate chairman and CEO David Lockwood said in the release.

"Over the past two years, our management team has successfully restructured our operations and resolved a number of liabilities,” Lockwood added. “This transaction is a strong validation of our work to deliver value to shareholders."

The joint venture will make employment offers to approximately 130 employees, primarily located in London, Ontario. Liberate will retain its European business and will continue to service its European customers.

In addition, concurrently with the effectiveness of the acquisition agreement, Lockwood is entering into a voting agreement with the joint venture under which he is agreeing to vote all shares of Liberate stock beneficially owned by him -- comprising approximately 12% of the company’s total outstanding shares -- in favor of the transaction.
The agreement will not become effective until the dismissal of Liberate's bankruptcy appeal, which the company has agreed to actively pursue. To that end, Liberate is filing a motion in the U.S. District Court for Northern California Monday to dismiss the appeal of its bankruptcy-case dismissal.

This past September, the U.S. Bankruptcy Court for the Northern District of California dismissed Liberate’s Chapter 11 bankruptcy case, ruling that the software vendor “has cash well in excess of its liabilities and is not otherwise entitled to bankruptcy protection.” Liberate was appealing that order.

The agreement is also subject to Liberate shareholder approval, Hart-Scott-Rodino antitrust approval and other customary closing conditions.

Liberate is scheduled to hold a conference call at 2 p.m. (PST) Monday to discuss financial results for the second quarter.

The conference call can also be accessed via live Webcast at Liberate's Web site (www.liberate.com), and it will be archived.

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