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Rovi to Acquire Sonic

23 Dec, 2010 By: Chris Tribbey

Metadata and networking technology company Rovi Corp. said late Dec. 22 that it had reached an agreement to acquire digital video company Sonic Solutions for roughly $720 million.

“Rovi and Sonic share a vision for the future of digital entertainment and how to deliver the best consumer experience possible,” said Fred Amoroso, president and CEO of Rovi Corp. “We believe Sonic has built an exciting portfolio that complements Rovi's TotalGuide as well as our broad portfolio of solutions. 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.”

In a Dec. 23 call with investors discussing the deal, Amoroso said electronic delivery news out of January’s International Consumer Electronics Show in Las Vegas will show the value of the acquisition.

“In short we believe we can add value to all the constituents in the ecosystem,” he said.

The deal will make Rovi an end-to-end provider in the digital entertainment industry, capable of broadening its business to content owners, device makers, retailers and operators, the company said. Sonic’s cloud-based digital media service, RoxioNow, is used by major retailers, studios and consumer electronics manufacturers, and currently boasts a catalog of more than 10,000 movies and TV episodes. By mid-2011, Sonic estimates RoxioNow will be on 30 million connected devices.

Sonic completed a $323 million acquisition of digital media company DivX in early October. DivX digital video is currently on more than 350 million devices, and DivX player software has been downloaded more than 500 million times. Rovi, which also operates the content search service TotalGuide, will aim to expand its advertising distribution business, leveraging both DivX and RoxioNow, the company said.

“The digital entertainment sector is transforming at a faster rate than just a year or two ago, and consumers are seeking new ways to discover and enjoy digital content, specifically premium content,” said Dave Habiger, president and CEO of Sonic Solutions. “By joining forces with Rovi, we will provide the industry with a broad range of solutions that strengthens our customers’ ability to compete as consumers’ primary source for digital entertainment.

“For our Hollywood studio partners, eager to expand digital delivery, the larger footprint of our combined company enables them to market their content broadly,” he added. During the Dec. 23 investor call, Habiger said his company’s studio partners have expressed “nothing but” excitement about the deal. “The strategic fit is obvious,” he said.

The per-share value of Sonic’s common stock is $14.17, a 38.2% premium to Sonic’s 30-day average share closing price as of Dec. 21. Approved by both companies’ board of directors, Sonic shareholders can receive either $14 or nearly a quarter-share of Rovi stock for each Sonic share. Rovi aims to commence the exchange offer for all outstanding shares of Sonic in January. Sonic directors and senior management, who own about 11% of the company, have agreed to tender their shares.

Rovi said it will use cash on hand and raise $500 million in nonconvertible term loan financing to fund the deal.

Rovi will hold an investor conference call at 8:30 a.m. EST on Dec. 23 to discuss the deal. Investors and analysts are invited to participate by calling 877-941-6010. The call will also be accessible via webcast at www.rovicorp.com.

Eric Wold, analyst with Merriman Curhan Ford in New York, said in a note to investors that the deal is good news for Sonic, which had been dealing with slow consumer adoption of its products.

“In our opinion, as the digital landscape continues to evolve over the coming years, manufacturers and studios will increasingly work with companies that can provide all technology needs — which is something this combined company will achieve through a number of key areas, including digital rights management, extensive metadata solutions, secure digital content transmission, as well as digital locker technologies.”

A note to investors from William Blair & Company said Rovi investors “should be excited about this transaction.”

“This deal makes significant strategic sense, wherein coupling the RoxioNow premium content platform and relationships with Rovi's [interactive program guide] technology, IP, and partnerships will likely drive revenue synergies for both firms (in addition to operating synergies), and we believe it will facilitate the more rapid adoption of the RoxioNow platform in the marketplace,” the note read.

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