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TiVo pitched by US bankers as takeover target, or is it a buyer?

An attempt to shake off the fairly dull market capitalization of $1

By PETER WHITE

Published: 7 July, 2011

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An attempt to shake off the fairly dull market capitalization of $1.28 billion at TiVo was attempted by one US merchant bank, the Maxim Group, this week talking up the idea of a TiVo takeover.

It says that companies such as Google , Microsoft or may make a move for it now that the Dish lawsuit is resolved, and that the purchase price could be as high as double what it is today, around $2.4 billion or $20 a share.

Almost nobody believed this piece of rhetoric though, as the share price, although at the top end of its range for some while, is still not as high as when it first appeared to have won the battle with Dish, when it rose to $1.9 million market capitalization in March 2010.

Although Tivo is described as unprofitable it points to the $500 million settlement with Dish this May which will enable TiVo to make money once again. It points out that TiVo has lost money in 10 of the past 11 years and says it is trading more expensively relative to revenue than 99% of consumer companies.

Our own view is that TiVo has too many imponderables to buy. The company has a wonderful result from Dish, but no track record yet in gaining license revenue without legal actions, and it has both AT&T and Verizon in its sights, and is likely to settle with them shortly. However that may be for a fraction of the license costs to Dish, if these deals don’t end up in the courts. It then has to show that it can circle the globe and do deals in the same vein as Rovi has managed with its EPG patents.

On top of this, it’s in the middle of a transition to technology provider of OTT cloud services for companies like Virgin in the UK, ONO in Spain and Canal Digital in Scandinavia, as well as new US partners RCN, Suddenlink, and Charter. While Virgin says it has a backlog of orders, Canal Digital has confused everyone by ordering a hybrid device built around MHP, which some say has to be a replacement for the TiVo box it is supposed to be preparing and suggest it has cancelled its deal there, although the company says that the TiVo device will come later.

So in our view no-one is going to know how TiVo is shaping up financially for at least another quarter, possibly two, and it is only then that TiVo will start to look like a takeover target. And this management team is pretty well proven in our view, to turn around what most people saw as a lost hand in Intellectual Property, while simultaneously changing the business model to a partner play to pay TV from the positioning of being a rival. TiVo should instead be looking for a few more quarters of steady revenue improvements and more legal settlements and then it could become the predator in merger talks, instead of the prey.

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