macrovision ben hier dave light april 22, 2008. agenda: 1. position background 2. macrovision...

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