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Macrovision
Ben Hier
Dave Light
April 22, 2008
Agenda:
1. Position Background
2. Macrovision Overview
3. Gemstar Acquisition
4. Gemstar Overview and Financials
5. Macrovision Financials
6. Recommendation
Position Background Bought 200 shares @ $75 (April 2000) Bought 300 shares @ $25.04 (April 2007) Sold 200 shares @ $26.40 (November 2007)
Chart from Google Finance: http://finance.google.com/finance?q=mvsn
Macrovision Focus: Empowering customers to enable
consumers to enjoy digital media on their terms
Leading Technology IP Licensing Provider Core technologies: protection, distribution and
enhancement Focus on creating recurring revenue
Macrovision (2007). Annual Report 2007. From SEC EDGAR database http://sec.gov/edgar Macrovision Lenders Presentation. April 9, 2008
Macrovision: Entertainment Business Unit
Allows Producers and Operators to safely deliver and distribute entertainment Ensure the users pay for each use Prevents copying of content
Customers pay one-time fee and/or recurring fees depending on content structure
Macrovision (2007). Annual Report 2007. From SEC EDGAR database http://sec.gov/edgar Macrovision Lenders Presentation. April 9, 2008
Macrovision: Embedded Solutions Business Unit
Focuses on consumer electronics Content protection Media Enabled Devices
Sells directly to CE Manufacturers For enabled devices, users pay per unit royalties
Macrovision (2007). Annual Report 2007. From SEC EDGAR database http://sec.gov/edgar Macrovision Lenders Presentation. April 9, 2008
Macrovision (spark notes):
Macrovision (2007). Annual Report 2007. From SEC EDGAR database http://sec.gov/edgar Macrovision Lenders Presentation. April 9, 2008
Manages complexity of selling content online Helps customers protect and license digital
content Helps customer grow revenues by selling
content through more distribution channels Ensures product lines are optimized for the
digital home (use on multiple devices)
Macrovision’s Strategic Investments & Divestitures
Acquired Company
Purchase Price
Sale Price Sold to:
Trymedia $34M (2005) $4M (2008) RealNetworks
Digimarc (12.5% Stake)
$25.3M (97-00) $17M (2008) Private Equity
Software Division *Various $200M (2008) Thoma Cressey Bravo
Macrovision Agrees to Buy Gemstar
$2.8B Transaction 51% MVSN Approval Needed & 67% GMST Needed
56% Cash ($1.6B) / 44% Stock ($1.2B)
GMST - $6.35 in cash or .2548 MVSN
Pro Forma Ownership Macrovsion (53%) / Gemstar (47%)
MVSN will raise $650M in debt $500M Term Loan & $150M (Senior Unsecured “High Yield”) Corporate Ratings: Ba3/B+ (Stable/Positive) Senior Secured: Ba1/BB- Pro Forma Leverage 4.3X 2007 Adjusted EBITDA
Junk Rating
Company Presentation to Lenders 4/9/08
Deal Impact
No indication by MVSN management regarding accretion/dilution Estimate $46M in synergies within 270 days
$30.627M related to headcount reduction
“Top-line synergies are likely to remain limited.” - Goldman Sachs’ Sasa Zorovic
Barron’s Online 12/10/07
Company Presentation to Lenders 4/9/08
Going Digital
Company Presentation to Lenders 4/9/08
Gemstar TV Guide•Gemstar is a global media, entertainment, & technology company
•Leading provider of video guidance
•TV, Print,& New Media Properties
•NASDAQ Listed (GMST)
•News Corporation (NWS) owns 41% of (GMST)
•July 2007 – “Explore Strategic Alternatives”
•MVSN Sole Bidder
2007 10-K
Gemstar’s SegmentsSegments (FY December 31, 2007) %
RevenuesGross Margin
Guidance Technology & Solutions 45% 65%
Media Networks 32% 18%
Publishing 23% -14%
Gemstar TV GuidePrice $4.94
Market Cap $2.12B
2006 EPS $0.17
2007 EPS (Ex-Tax Benefit) $0.16
2008 Estimated EPS (Model) $0.17
Adjusted P/E (TTM) 31
Forward P/E (Model) 29
Beta 1.20
Google Finance
2.93%
7.23%
0.0%
3.0%
6.0%
9.0%
12.0%
15.0%
CAGR
CAGR Since IPO (10/11/1995)
Gemstar NASDAQ
GMST Valuation
MacrovisionPrice $14.19
Market Cap $767MM
2006 EPS $0.63
2007 EPS (Ex-Tax Benefit) $0.58
2008 Estimated EPS (Model) $0.71
P/E (TTM) 24
Forward P/E (Model) 20
Beta 1.38
Google Finance
Macrovision DCF
Beta from Yahoo Finance (http://finance.yahoo.com/q/ks?s=MVSN)Rd from Macrovision (2007). Annual Report 2007. From SEC EDGAR database http://sec.gov/edgar
$MMYear 2008E 2009E 2010E 2011E 2012E TerminalFCF 25.8 31.5 44.2 59.1 73.1 $1,054
Present Value $23.02 $24.96 $31.23 $37.16 $40.94 $525.89
Beta 1.38
RF 4.00%
Rm 10%
Re 12.28%Rd 5.80%
MVE $769
MVD $0
VF $769
g 5%
Tax Rate 35%Debt/TV 0.00%Equity/TV 100.00%WACC 12.28%
Sensitivity Analysis WACC12.60 9.00% 10.00% 11.00% 12.00% 12.28% 13.00% 14.00% 15.00% 16.00%3.5% 18.32 15.22 12.96 11.24 10.83 9.89 8.81 7.92 7.194.0% 19.91 16.29 13.72 11.80 11.35 10.32 9.14 8.19 7.404.5% 21.86 17.56 14.60 12.44 11.93 10.80 9.51 8.48 7.635.0% 24.29 19.08 15.62 13.17 12.60 11.34 9.92 8.80 7.89
Growth 5.5% 27.42 20.94 16.83 14.01 13.37 11.94 10.38 9.15 8.166.0% 31.59 23.26 18.29 14.99 14.25 12.64 10.89 9.54 8.476.5% 37.43 26.25 20.06 16.14 15.29 13.44 11.48 9.98 8.817.0% 46.19 30.23 22.28 17.53 16.53 14.38 12.14 10.47 9.187.5% 60.78 35.81 25.14 19.23 18.03 15.49 12.91 11.03 9.60
Macrovision DCF
Under our most accurate model Current Stock Price: 14.19 DCF Valuation: 12.60 Utilizes optimistic WACC
Low beta of 1.38 (Google Finance = 2.13) Optimistic about earnings potential in 2008.
Jump from $0.58 to $0.71
Conclusion
Major Acquisition Both companies trading above their current DCF
valuation Lack of proven managerial expertise
Larger, more diversified company Utilizing debt for the first time
Sell 300 shares at the market