Macrovision
Ben Hier
Dave Light
April 22, 2008
Agenda:
1.
2.
3.
4.
5.
6.
Position Background
Macrovision Overview
Gemstar Acquisition
Gemstar Overview and Financials
Macrovision Financials
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



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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):



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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 (2007). Annual Report 2007. From SEC EDGAR database http://sec.gov/edgar
Macrovision Lenders Presentation. April 9, 2008
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)
Junk Rating
 Senior Secured: Ba1/BB Pro Forma Leverage 4.3X 2007 Adjusted EBITDA
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 Segments
Segments (FY December 31, 2007)
% Revenues Gross Margin
Guidance Technology & Solutions
45%
65%
Media Networks
32%
18%
Publishing
23%
-14%
Gemstar TV Guide
Price
$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
CAGR Since IPO (10/11/1995)
15.0%
12.0%
7.23%
9.0%
6.0%
2.93%
3.0%
0.0%
CAGR
Gemstar
NASDAQ
GMST Valuation
Macrovision
Price
$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
1.38
RF
4.00%
Rm
10%
Re
Rd
12.28%
5.80%
MVE
$769
MVD
$0
VF
$769
g
Tax Rate
Debt/TV
Equity/TV
WACC
$MM
Year
2008E 2009E 2010E 2011E 2012E Terminal
FCF
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
5%
35%
0.00%
100.00%
12.28%
Sensitivity Analysis
Growth
12.60
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
9.00%
18.32
19.91
21.86
24.29
27.42
31.59
37.43
46.19
60.78
10.00%
15.22
16.29
17.56
19.08
20.94
23.26
26.25
30.23
35.81
11.00%
12.96
13.72
14.60
15.62
16.83
18.29
20.06
22.28
25.14
12.00%
11.24
11.80
12.44
13.17
14.01
14.99
16.14
17.53
19.23
WACC
12.28%
10.83
11.35
11.93
12.60
13.37
14.25
15.29
16.53
18.03
13.00%
9.89
10.32
10.80
11.34
11.94
12.64
13.44
14.38
15.49
14.00%
8.81
9.14
9.51
9.92
10.38
10.89
11.48
12.14
12.91
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
15.00%
7.92
8.19
8.48
8.80
9.15
9.54
9.98
10.47
11.03
16.00%
7.19
7.40
7.63
7.89
8.16
8.47
8.81
9.18
9.60
Macrovision DCF

Under our most accurate model
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Current Stock Price: 14.19
DCF Valuation: 12.60
Utilizes optimistic WACC

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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