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Macrovision (MVSN)
Investors Withdraw as Macrovision Purchases Gemstar-TV Guide
Early this morning, Macrovision, an technology company specializing in protecting entertainment content, made an agreement to purchase television company Gemstar-TV Guide (GMST: Charts, News, Offers) for $2.8 billion. The two companies appear that they will mesh well together, and be able to provide products and services that consumers will enjoy. Since this morning's announcement, however, shares of both companies have plummeted, with Macrovision stock falling over 22% and Gemstar currently down 18%, despite stable market conditions. What will this new deal hold for stockholders, consumers, and the two companies, and do the stockholders have a legitimate reason for their worries?
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Back in July, Gemstar-TV Guide put the company up for sale. The company was encouraged to do this by Rupert Murdoch's News Corp. (NWS: Charts, News, Offers), which currently owns over 40% of Gemstar. Murdoch has expressed interest in focusing on its internet services such as MySpace rather than its television companies. Murdoch has announced that they are fully in support of Macrovision's purchase of Gemstar.
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This deal, however, could not have been a simple decision for Macrovision. The company has a market value under $1.4 billion, and will be spending more than double that amount in order to purchase the significantly larger company, Gemstar. The arrangement will require Macrovision to take on approximately $800 million in debt, which will be provided by JP Morgan (JPM: Charts, News, Offers) and Merrill Lynch (MER: Charts, News, Offers). About $1.5 billion will be spent in providing cash to Gemstar's current shareholders, who have the option of cash or a fraction of a share in the new company.
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While these details may be worrying Macrovision's investors, Gemstar's investors may be pulling out because of the way this agreement seems to favor Macrovision. Macrovision's current CEO and CFO will continue to run the combined company, while Gemstar's GEO and CFO will be leaving once the deal is complete. The new board of directors will be slightly biased in Macrovision's direction, with 4 members to be chosen by Macrovision, and 3 by Gemstar. It is a common and understandable occurrence for the purchasing company to be the one to have most of the power, but there will still be investors who will pull out because the new company won't be the same as the one they originally invested in.
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Macrovision seems to have a clear idea about different ways the two companies will be able to contribute to making the new company stronger. The company has already mentioned plans of new products that will integrate Gemstar's various television, music, and other forms of entertainment with Macrovision's methods for protecting content, and will be able to provide this media for users through many different methods and devices. Although the plans do sound like they will appeal to today's media-enamored culture, the new company must first prove that they can overcome all of the hurdles involved in merging these two companies. If the financial and other challenges can be met, and the company begins to put its plans into action, investors will likely regain their interest in the newly-merged company.
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