The company that presently owns HD Radio is grabbing a DVR pioneer with a household name in an all-stock transaction valued by the companies at approximately $3 billion.
As such, HD Radio will soon be a cousin of TiVo.
That’s because TiVo Corporation and Xperi Corporation have agreed to a merger.
“The transaction creates a leading consumer and entertainment technology business and one of the industry’s largest intellectual property (IP) licensing platforms with a diverse portfolio of entertainment and semiconductor intellectual property,” the companies jointly said in an announcement distributed early Thursday (12/19).
In light of the business combination, TiVo has suspended its near-term plans to separate its product and IP businesses.
David Shull, TiVo’s CEO, commented, “TiVo’s management team and board have engaged in a comprehensive review of TiVo’s businesses over the past year, and we are confident that this combination with Xperi is the right path forward for all our stakeholders. While we previously planned to separate our product and IP licensing businesses in April 2020, we believe today’s combination with Xperi will enable us to create even more value for our shareholders in both the near and long term by allowing each to go to market with greater financial and operational scale.”
Upon closing of the transaction, each company’s respective product and IP businesses will be integrated and operated as separate IP licensing and product business units. This, the companies say, will facilitate a potential separation of the combined businesses at a later date.
The merger agreement provides for a 0.455 fixed exchange ratio, which implies a 15% premium to TiVo’s shareholders based on each of Xperi’s and TiVo’s 90-day volume-weighted average share prices.
At close, Xperi shareholders will own approximately 46.5% of the combined business, and TiVo shareholders will own approximately 53.5%.
In connection with the transaction each company’s debt will be refinanced on a combined basis. To meet this objective, the companies have secured $1.1 billion of committed financing from Bank of America and Royal Bank of Canada (RBC).
The post-merger company will take the Xperi name, with its CEO, Jon Kirchner, keeping his role — as will Xperi CFO Robert Andersen.
Shull, who will eventually exit the company, will continue as a strategic advisor “to ensure a successful integration,” Xperi and Tivo say.
The Board of Directors of the new parent company will consist of seven directors, including Kirchner, and three directors appointed by Xperi and three directors appointed by TiVo. The Chair of the Board will be selected by the independent directors of the Board.
The new Xperi will continue to provide entertainment services under the TiVo brand, alongside Xperi’s DTS, HD Radio, and IMAX Enhanced brands. The company will be headquartered in San Jose, Calif.
“TiVo’s leading content aggregation, discovery, and recommendation capabilities enable viewers to more easily find, watch, and enjoy entertainment,” the companies said. “When coupled with Xperi’s strong presence and product capabilities in the home, automotive, and mobile device ecosystems, the combined company will have a unique industry platform to address an ever-increasing consumer desire to enjoy entertainment anywhere, anytime, on any device.”
Additionally, the combination will create an intellectual property licensing platform that spans a number of the largest addressable markets in entertainment content, consumer electronics, and semiconductors.
“With more than 10,000 patents and applications between the two companies and minimal licensee overlap, the combined IP business will be one of the largest licensing companies in the world,” Xperi and TiVo said. “Further, the combined business will benefit from greater research and development capabilities, as well as customer diversification.”
Calling the merger a “landmark combination,” Xperi CEO Jon Kirchner said, “Together we will be able to integrate TiVo’s leading content aggregation, metadata, discovery, and recommendation capabilities with our home, automotive, and mobile technology solutions to help our customers create experiences that excite and delight consumers. Additionally, the combined company will continue to unlock the value of our strategic and sizable patent portfolios by bringing together our deep industry expertise and powerful innovation engines. Through greater scale and diversity, we will deliver attractive and sustainable long-term cash flow and shareholder value.”
Shull added, “In a rapidly expanding and fragmenting digital universe, consumers want and need to be able to easily find and enjoy the content that matters to them. TiVo has always been the company that brings entertainment together. Now, we can significantly expand our mission. With Xperi’s annual licensing of more than 100 million connected TV units, and complementary relationships with major content providers, consumer electronics manufacturers, and automotive OEMs, our combined company will transform the home, car, and mobile entertainment experience for the consumer.”
The first step in what is being called the post-merger company’s “value creation plan” will focus on integrating the companies’ respective product and IP licensing businesses.
“Together, the companies expect to benefit from a larger and stronger platform to drive growth and innovation, accelerate time-to-market, and improve IP licensing monetization and outcomes,” Xperi and TiVo said. “The product business expects to pursue substantial cross-selling opportunities, especially in its home and automotive markets.”
The transaction is expected to close during the second quarter of 2020, subject to regulatory approval and the shareholders of each company, along with other customary closing conditions.
LionTree Advisors LLC served as exclusive financial advisor to TiVo and Cooley LLP served as legal advisor.
Centerview Partners LLC served as exclusive financial advisor to Xperi. Skadden, Arps, Slate, Meagher & Flom LLP served as legal advisor.
NOL Rights Plan
Concurrent with the approval of this transaction, TiVo’s Board approved the adoption of a Stockholder Rights Plan (the NOL Rights Plan) designed to protect TiVo’s $1 billion federal Net Operating Losses (NOLs) from the effect of Section 382 under the U.S. Internal Revenue Code, which can limit the use of the NOLs.
The completion of the TiVo deal would move TiVo closer to the 50% ownership change outlined in Section 382 and increase the risk of a loss of TiVo’s valuable NOLs.
TiVo believes that its tax attributes represent an important corporate asset that can provide long-term stockholder benefits and should be protected.
The NOL Rights Plan is similar to those adopted by numerous other public companies with significant tax assets.
The NOL Rights Plan is set to expire at the earlier of completion or termination of the TiVo transaction.