Gemstar-TV Guide International has put itself up for sale, appointing UBS Investment Bank as its financial advisor to explore alternatives. The move has come for no apparent reason, with the company still happily signing patent licenses for its technology, with royalties rising 8.8% this year.
But its past is littered with legal actions and it was the big bad bully of the IPG business until its former CEO Henry Yuen left the company under a cloud during 2002, after a patent reversal at the hands of the US International Trade Commission and allegations of misreporting. During the past five years under new CEO Richard Battista legal actions have been a little more restrained, but there is one significant remaining suit with set top software maker Digeo which has alleged anti-trust and Gemstar has only just resolved its case with former CEO Yuen, who sued for wrongful dismissal, and although he lost this case, the company and the man share patents and the company has to continue paying Yuen patent royalties for the next few years.
Gemstar holds a handful of patents which relate to Interactive Program Guides, the formats of the data held in them and various chip designs inside TV sets and video recorders that allow for even the simplest of TVs and recording equipment to adapt to programming changes.
For some time Gemstar has been aware of the need to innovate into other areas and has been working on online programming search and has licensed some of its technology to Yahoo.
During the last quarter Gemstar did $156 million in revenues, making $34 million in net income, and it holds $427 million in cash. Its shares leapt almost 20% on the news, and now the company is valued at $2.5 billion, around 3.25 times revenues plus cash.
News Corp, which owns 41% of the company stands to gain from any transaction, and it has just signed up subsidiary Sky Italia for a multi-year patent licence with Gemstar, perhaps to signal that business would continue as usual. We’ll see.
Likely buyers are thought to be Private Equity businesses eyeing the cash and other pay TV rivals. We wouldn’t be surprised to see a collection of US cable operators mounting a challenge.