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TiVo merges with technology licensor Xperi in $3 billion deal

Sarah Perez

Earlier this year, TiVo said it was preparing to split itself into two -- a product and IP business -- in order to make itself more attractive to buyers. Today, the company announced those plans have been put on hold as it has instead merged with technology licensor Xperi Corporation, in a $3 billion deal. The merger will see each company's IP licensing and product businesses integrated with one another, then operated as separate units. This will allow the newly combined company to sell off one of those units to a strategic buyer at a later date.

Bloomberg previously reported on the companies' planned merger.

The combined company will be called Xperi and will be headquartered in San Jose, California. It will continue to sell entertainment services under the TiVo brand, alongside Xperi's own premium DTS, HD Radio, and IMAX Enhanced brands.

Following the completion of the transaction, Xperi's CEO Jon Kirchner will become the CEO of the parent company and Xperi's CFO Robert Anderson will continue to serve in that role for the merged company. TiVo's CEO, David Shull, meanwhile, will continue as a strategic investor to ensure the transaction completes. The new parent company's board will include Kirchner plus 6 directors appointed by Xperi and TiVo, who each appoint 3 of the 6.

Shares of TiVo and Xperi stockholders will be converted to shares of the new parent company based on a fixed ratio of 0.4555 Xperi share per existing TiVo share. When the deal completes, Xperi stockholders will own 46.5% of the new company and TiVo stockholders will own approximately 53.5%, on a fully diluted basis.

Each company's debt will also be refinanced on a combined basis (totaling $1.1 billion) by Bank of America and Royal Bank of Canada.

The new company had $1.09 billion in TiVo revenue and Xperi billings and more than $250 million in operating cash flow on a pro forma basis for the twelve months ended September 30, 2019, the companies said.

Meanwhile, the "$3 billion" figure represents the combined value of Xperi and TiVo. The company sees the deal as a merger, which is why it's citing the $3 billion figure. The deal, however, values TiVo at around $1.2 billion, Bloomberg had reported. The fully diluted equity value of the combined company would be $2.4 billion, and the enterprise value of the combined company is approximately $3 billion.

TiVo was previously acquired in 2016 by Rovi for $1.1 billion, which took the name TiVo when the deal closed. Once a leader in DVRs, TiVo has struggled to recapture consumer interest in market led by smart TVs and media players like Roku, Fire TV and Apple TV, often by cord-cutters who have no need to record currently airing programs.

Together, the two companies will have a patent portfolio that includes over 10,000 patents and applications with "minimal overlap," the companies said.

In addition, the new company plans to expand TiVo's content aggregation, discovery, and recommendation capabilities to include Xperi's product line including home, auto, and mobile devices. TiVo has been planning to present product news at CES in January, which may shed more light on its plans.

"This landmark combination brings together two highly complementary companies poised to set the industry standard for user experiences across the digital value chain," said Jon Kirchner, Chief Executive Officer of Xperi, in a statement. "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," he said.

"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," Kirchner added.

TiVo CEO David Shull noted also that Xperi's annual licensing business includes over 100 million connected TV units, and relationships with content providers, CE manufacturers, and automotive OEMs, which now benefit from TiVo's technology.