Gemstar Rejects United Video’s Hostile Bid

After insisting for 10 days that it is not for sale, Gemstar International Group’s board of directors on Thursday formally rejected an unfriendly $2.8-billion takeover offer from onetime partner United Video Satellite Group.

Henry Yuen, chief executive of Pasadena-based Gemstar, said the $45-per-share offer undervalues his interactive television services company, whose stock has traded in the $35 to $43 range for the last three months. The stock has held steady above $42 this week after Gemstar announced a pair of deals involving software behemoth Microsoft and the NBC television network.

Based on Gemstar’s Thursday closing price of $42.13, the United Video offer represents a scant 7% premium over the stock’s current value.

But although Yuen continued to stress that Gemstar is not for sale, he seemed to open the door to accepting a higher offer from United Video, a Tulsa, Okla., company that produces the on-screen television listing service Prevue and last month agreed to buy TV Guide from News Corp. for $2 billion.

“If there comes an offer which is sufficiently bona fide and interesting to consider, we’ll certainly look at the offer and consider it seriously,” Yuen said.

A spokeswoman for United Video, which is controlled by cable giant Tele-Communications Inc., said the company’s president, Peter Boylan, had expected Gemstar to reject the offer.

When he unveiled United Video’s offer last week, Boylan said the technology of the two companies could be combined to provide a single source for navigating through thousands of TV listings on paper, on TV and online.

Gemstar and United Video were set to form a joint venture in January to market technology and data services for interactive program guides to cable and satellite TV operators, but the deal fell apart in March. After that, United Video offered to buy Gemstar. At the time, Gemstar’s stock was trading at $31.50, so the offer represented a much heftier premium.

But Yuen said price wasn’t the only reason Gemstar rejected United Video’s offer. As written, the contract would have restricted Gemstar’s business activities until the deal was finalized, potentially leaving the company vulnerable if the merger did not go through, Yuen said.

In Nasdaq trading, Gemstar shares rose as high as $43.63 on Thursday before settling back to $42.13, unchanged from Wednesday, and United Video shares fell $1 to close at $33.25.

Murray Arenson, an analyst with Hoak Breedlove Wesneski in Dallas, said he thought $45 per share was a good offer for Gemstar. Now that it has been rejected, “United Video isn’t left with a lot of good choices if they want to move forward and try to merge with Gemstar,” he said.

Proceeding with a hostile bid would be time-consuming and difficult, especially since Gemstar adopted a so-called poison pill earlier this week, Arenson said. United Video might persuade Gemstar to reconsider a friendly deal if it raised its bid, but then it would be overpaying for the company, he said.

Yuen gave no hint as to what price Gemstar might be willing to accept, but he said the board of directors decided that $45 a share was too low based on the advice of financial advisor Lazard Freres & Co.

Arenson said United Video’s third option--to walk away--is the worst because it wouldn’t end intellectual-property litigation between the companies, which has stalled United Video’s product development.