Gemstar to Buy StarSight for $255 Million

Gemstar International Group, maker of VCR Plus+, will buy its chief competitor, StarSight Telecast Inc., in a deal valued at about $255 million.

The acquisition would make Fremont-based StarSight a wholly owned subsidiary of Gemstar, which is based in Pasadena. The combined company would have annual sales of roughly $55 million and about 300 employees after a small number of layoffs, company officials said.

The deal formally recognizes StarSight’s retreat from the market for interactive television, which never really came to pass. The company’s technology was developed to help viewers wade through television listings for the much-anticipated 500 cable stations, then set their VCRs to record programs with the push of a single button.

That put StarSight at odds with Gemstar, which developed the VCR Plus+ system that allows people to program their videocassette recorders by inputting a code number that is listed next to each television show in TV Guide and other listings.

Earlier this year, StarSight changed its focus to concentrate on licensing its on-screen program guide for use with cable set-top boxes, satellite systems and a new breed of TVs combined with personal computers. That paved the way for a deal between the two companies, said Henry C. Yuen, Gemstar chief executive.

“Gemstar has always been focused in consumer electronics, and now StarSight’s emphasis is in the satellite, PC, cable and telecommunications arena,” Yuen said Tuesday. “That is a very good complement for us.”

Kian Ghazi, a research analyst with Lehman Bros. in New York, agreed that the deal “makes a lot of strategic sense.” The companies can expect marketing synergies and will also save “several million dollars apiece” in expenses stemming from a legal battle between Gemstar and StarSight over intellectual property. As part of the deal, the companies agreed to halt their lawsuits with the aim of dismissing all claims at the completion of the acquisition, which is expected in the spring.

Gemstar’s purchase of StarSight should also make it easier for the Pasadena company to roll out its new TV Guide Plus+, an on-screen interactive television guide that must be built directly into television sets. The TV Guide Plus+ service is a competitor to the StarSight system, which is backed by StarSight investor Thomson Multimedia, a subsidiary of the French electronics giant that produces of one in five television sets.

“Potentially Gemstar would have been precluded from (Thomson’s) 20% of the market,” Ghazi said. “This really opens up access to that market.”

In addition to Thomson Multimedia, StarSight partners include Viacom Inc., Cox Communications Inc., Tribune Co., Providence Journal Co. and Time Warner Inc. In addition, Microsoft Corp. agreed Monday to pay StarSight Telecast $20 million as part of a cross-licensing agreement.

Under the terms of the merger, which was announced late Monday, StarSight Telecast shareholders would receive 0.6062 shares of Gemstar common stock for each share of StarSight common stock. In Nasdaq trading Tuesday, Gemstar shares fell 38 cents to close at $16.50, while StarSight stock rose 50 cents to $9.50.

Yuen would continue as chief executive of the combined company. StarSight’s chairman and CEO, Larry Wangberg, would advise Gemstar on strategic matters, with special focus on the cable industry. StarSight President Brian Klosterman would run the company as a Gemstar subsidiary.