Gemstar to Name a New President

In an attempt to improve its credibility on Wall Street and plug a management void, Gemstar-TV Guide International Inc. is expected as early as today to name News Corp. executive Jeff Shell as president and chief operating officer, according to sources close to the company.

The appointment would be the strongest signal yet that News Corp., which last year doubled its stake in Gemstar to 44%, is taking a more active role in managing the Pasadena-based company, which publishes TV Guide magazine and produces electronic TV program guides. But it was unclear how much authority News Corp. would have over Gemstar’s management, which is led by founder and Chief Executive Henry Yuen, who also controls the board. Sources said Yuen has approved Shell’s appointment.

Shell has been a top executive at News Corp. since 1994, most recently overseeing the group that distributes the company’s cable networks, including FX, two dozen regional sports networks, National Geographic and the Speed Channel, formerly Speedvision.

Sources say News Corp. Chairman Rupert Murdoch is angered by the poor performance of Gemstar, whose value has plummeted by 90% since 2000, when the media mogul merged his TV Guide into the Pasadena company. Murdoch’s goal was to create the dominant TV navigational portal by combining the marquee magazine name with an on-screen guide.

On Friday, Gemstar stock closed at $10.54 on Nasdaq, up 62 cents.

The move to bring in Shell was said to be prompted by recent disclosures by Gemstar of aggressive accounting practices that have provoked a dozen class-action shareholder lawsuits and an investigation by the Securities and Exchange Commission. In addition, News Corp. was forced to take a $2-billion write-off last month on its investment in Gemstar because of the steep decline in value.

And some analysts say News Corp. could be forced to take another charge because of the accounting disclosures.

Gemstar’s stock has slipped steadily amid court challenges to its dozens of patents covering electronic TV guides and falling confidence in Yuen and his management team.

Although Yuen is considered a brilliant inventor, he lacks management acumen to step into the void left by a series of executive departures. Co-Chief Operating Officers Peter Boylan and Joe Kiener were swept out in the last year, leaving Yuen and Chief Financial Officer Elsie Leung, who also became chief operating officer, to run the company.

As part of the restructuring, Leung would relinquish her title as operating chief and become co-president alongside Shell, as well as retain her CFO title, according to the sources. Shell would become sole operating chief, sources say.

Gemstar has lost a third of its value since April 1, when it disclosed that it reported about $80million in revenue last year that it had not collected. Gemstar recorded revenue that came from advertising swaps and licensing fees it hoped to collect through a lawsuit.

The pain for Murdoch is that much greater because of his increased exposure in Gemstar. Last year, he swapped News Corp. shares for Liberty Media’s 22% of Gemstar to add the combined interest to a new company, Sky Global, hoping that the bulkier value would improve his chances of buying DirecTV from Hughes Electronics Corp. News Corp. lost its bid for DirecTV to rival Echostar Communications Corp.

One analyst on Sunday viewed Shell’s addition as a positive development, but some insiders say that Murdoch will have difficulty asserting management authority in the face of Yuen’s control.

Although News Corp. controls six of the 12 seats on the Gemstar board, Yuen, who governs the other half, has ultimate power because of his ability to break any tie vote.Sources say Yuen and Leung would continue to have a lock on the purse strings of the company, which could make it difficult for Shell to have any impact. While Shell would oversee operations, the finance group would continue to report to Leung.

Shell, a respected executive who cleaned up the financial structure of News Corp.’s cable group since taking charge two years ago, has several challenges at Gemstar. Aside from restoring Wall Street confidence, he must revive TV Guide, whose circulation is falling. It still reaches 7 million subscribers but is viewed by many as irrelevant in the 100-channel universe.

Many on Wall Street also have become disenchanted with the potential for electronic guides to become an advertising powerhouse.

Sources close to Gemstar say Shell is expected to start at Gemstar today. News Corp. is not expected to name his successor immediately.