Gemstar explores a possible sale
Gemstar-TV Guide International Inc., whose history of ups and downs would be fit for a financial soap opera, said Monday that it was exploring a possible sale.
Shares of the Hollywood company, which is controlled by Rupert Murdoch’s News Corp., shot up in after-hours trading after the announcement.
The company is the largest supplier of television navigational tools and is the owner of TV Guide.
Murdoch would be selling Gemstar at a time when he is pursuing a $5-billion acquisition of Dow Jones & Co., the parent of the Wall Street Journal.
Gemstar’s stock market value is about $2 billion.
Potential suitors are plentiful, said analyst George Sakellaris of GARP Research in Baltimore, who declined to name possible buyers.
“There is a lot of growth opportunity in their patent and software licensing business,” said Sakellaris, who rates the shares a “buy.” “The company basically has a lock on interactive program guide technology.”
Gemstar has long-term contracts with most of the major cable and satellite providers in the U.S. and abroad, Sakellaris said, including a deal with British Sky Broadcasting Ltd. reached late last year.
The company also has lucrative patents and a host of potential revenue streams such as advertising on its interactive programming guides, he said.
Gemstar’s shares collapsed amid an accounting scandal as the tech stock bubble burst in 2000. Shares have recently perked up slightly thanks to the company’s improved earnings.
In addition to other media companies, private equity firms flush with cash could be mulling over bids and Gemstar-TV Guide might end up splitting in two, other analysts say.
“The company has made significant improvements throughout its businesses and the board is very pleased with the growth and strategic direction under CEO Richard Battista,” Chairwoman Anthea Disney said in a statement.
Gemstar is benefiting from growing demand for its electronic television guide that can be programmed into video recorders and TV set-top boxes.
In May, the firm reported a jump in profit to $34.4 million, or 8 cents a share, from $8.6 million, or 2 cents, a year earlier. Its interactive program guides drove revenue 9% higher.
Gemstar, a darling of the late 1990s stock market boom, traded as high as $90 a share in August 2000 before the company was enveloped in one of Southern California’s most notorious accounting scandals, sending its shares into freefall.
In a victory for the Securities and Exchange Commission, a federal judge in Los Angeles found former Chairman and Chief Executive Henry C. Yuen liable for securities fraud last year, ruling that he misled investors and auditors by inflating revenue from 1999 to 2002.
Yuen was ordered to pay $22.3 million in fines and forfeitures of bonuses and trading profit.
Gemstar has struggled to recover in recent years. A full-size version of its namesake magazine was a costly flop in 2005.
The magazine is on firmer footing today but is unlikely to drive growth, Sakellaris said.
A Gemstar-TV Guide sale could close one of the least successful chapters in billionaire Murdoch’s investing career.
Analysts say the media magnate overpaid for TV Guide in the 1980s, spending about $3 billion for the magazine that would soon be in decline and two other publications.
His acquisition of the Pasadena-based media technology company Gemstar turned into a multibillion-dollar disaster.
In Monday’s regular trading session, Gemstar-TV Guide shares gained 24 cents, or 4.7%, to $5.34 on unusually heavy volume. In after-hours trading the shares rocketed to $6.32, up 18% from the close.
