Gemstar Mulling Sale


Almost five years after surviving federal investigations into questionable accounting practices and the firings of two former top officers, Gemstar TV Guide International has put itself on the block.

Gemstar, which put its past indiscretions behind it in a massive restructuring in November 2002, is beginning to reap the benefits of its interactive programming guide patents (Research Associates analyst Marla Backer estimates Gemstar will report a profit of $103 million on $612 million in revenue this year) and recently signed a deal with Comcast to develop other programming guides.

Some analysts see the main catalyst behind a potential sale is that Gemstar's biggest shareholder — News Corp., which owns 41% of its stock — wants to cut its losses.

On July 9, Gemstar said it hired UBS Investment Bank to help evaluate strategic alternatives, including a possible sale.

News Corp. acquired its Gemstar equity in a series of complicated deals with Liberty Media in 1998.

But by 2002, after an accounting scandal that eventually led to the firings of Gemstar founder and former chairman Henry Yuen and former chief financial officer Elsie Leung, News Corp. had taken a $6 billion write-down on that investment.

“The company has made significant improvements throughout its businesses and the board is very pleased with the growth and strategic direction under CEO Richard Battista,” Gemstar chairman Anthea Disney said in a statement. “We are now poised to investigate the range of available strategic alternatives for continuing to build shareholder value.”

News Corp. also said that although it is pleased with the progress that Gemstar management has made and its strategic direction, its core business is in “cross platform video guidance, which is not an area in which News Corp. is seeking to increase its presence. News Corp. fully supports the Gemstar-TV Guide's board of directors' decision to explore strategic alternatives at this time in order to maximize value for all shareholders.”

Gemstar's stock is up $1.07 (20%) since the July 9 announcement, closing at $6.41 on July 12.

Analysts value the company at about $3 billion and say potential suitors could include Microsoft and Google.

“Gemstar would be logical target for any of the cable, satellite, or phone video providers, especially those few that currently have some current content assets that could dovetail with Gemstar's offering,” Miller Tabak media analyst David Joyce wrote in a research report.

Comcast is a possible suitor: Its E! Entertainment and Style cable networks would mesh with Gemstar's widely distributed TV Guide Network, and the cable provider has a partnership with Gemstar to develop advanced electronic guides.

Perhaps coincidentally, Gemstar said late last week it had leased new office space near Bryant Park in Manhattan to house New York operations, including those of TV Guide magazine and of ad sales. The move, expected in December, would be from News Corp.'s midtown headquarters at 1211 Avenue of the Americas.