Guiding Asset Sales

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With its $2.8 billion purchase of Gemstar-TV Guide International expected to close next month, Macrovision has been quietly gauging interest in some of the interactive programming guide vendor’s other assets, including TV Guide Network and horse-racing channel TVG.

According to an executive familiar with both companies, Macrovision has started the process to shop other Gemstar assets, which also include TV Guide magazine. While the executive declined to estimate what prices those assets could attract, SNL Kagan analyst Derek Baine believes they could bring in around $1 billion.

IPG WILL STAY
Macrovision, which started out developing technology to help companies secure and distribute content such as movies, music and video games online, is most interested in Gemstar’s interactive programming guide technology.

The company would like to integrate the Gemstar IPG with its own software to allow the creation of a hub for content from both the Internet and cable and broadcast television on the television screen.

Macrovision said when it first announced the deal that it would borrow about $800 million for the transaction. That debt requirement dropped to about $600 million after the company agreed to sell its licensing and installation management software business to private equity firm Thoma Cressey Bravo in February for about $200 million.

Gemstar shareholders have the option of taking $6.35 in cash for each of their shares in the company or accepting 0.2548 shares of stock in the new company for each of the Gemstar shares.

Macrovision has said that the cash portion of the deal will not exceed $1.55 billion.

Gemstar and Macrovision shareholders are expected to vote on the deal in two separate special meetings on April 29. According to Gemstar, the deal is expected to close in early May.

Janco Partners analyst April Horace, who follows Gemstar-TV Guide, said Macrovision should have little problem finding interested buyers for the TV Guide Network and TVG.

She said early speculation was that Comcast could be interested in the TV Guide Network – which is nearly fully distributed in about 83 million cable and satellite homes – as a companion channel for its E! Entertainment network.

“I believe there will be a fair number of interested parties, especially in certain pieces,” Horace said.

Comcast officials declined comment.

Macrovision officials have stated the company wants to explore options regarding the two programming services and the magazine. Gemstar’s statement on that prospect is: “Over the past several years, we have made significant enhancements to TV Guide Magazine, TV Guide Network and the TVG horseracing business. We believe these enhancements have strengthened each of these assets and improved their value, but recognize they may not fit into the long term strategy of Macrovision.”

Baine’s analysis is that the Macrovision deal valued TV Guide Network at about $408 million, TVG at $112 million and the magazine at $61 million, numbers he called extremely low. But, he noted the magazine may have to be sold along with the two cable channels because of branding issues, and that could be a problem for some buyers.

“Still, Macrovision might be able to find a buyer in the $1 billion range for the network and publishing divisions, which would still be a dirt-cheap valuation of less than $10/subscriber,” Baine wrote in an e-mail.

SUNDANCE UPDATE
If they go on the block, the TV Guide Network and TVG would join at least one other well-known cable network looking for a buyer – the Sundance Channel. Sundance, owned by NBC Universal, CBS Corp.’s Showtime Network and movie legend Robert Redford, is reportedly seeking a price between $400 million and $500 million.

According to executives familiar with that auction, final bids for Sundance are due in about one week. Possibly bidders include Comcast, Time Warner Inc. and Viacom.

Macrovision could practically give away the magazine and still come out ahead, Horace said.

She estimated the magazine has about $3 billion in net operating loss carryforwards – a tax benefit that allows companies to use losses to offset taxable profits – that could offset capital-gains taxes on the sale of other assets.

“[If] you shut it down or sell it for a loss, you now have a $3 billion capital loss carryforward,” Horace said. “Anything [Macrovision] sells of the channel or the games, any gain there would be offset by that carryforward.” 

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