Gemstar International Group Inc.'s board rejected a
$2.8 billion buyout offer from United Video Satellite Group Inc. last Thursday, days after
taking steps to ward off a hostile takeover.
Gemstar CEO Henry Yuen said all seven directors who voted
cast their votes against taking UVSG's $45-per-share offer. He would not say what
actions Gemstar's three other directors took, or if chairman and co-founder Thomas
Lau voted.
UVSG claimed that Lau, who controls 24 percent of Gemstar
shares, supported the buyout. UVSG also said Viacom Inc. and Thomson Consumer Electronics,
which each have one representative on Gemstar's board, backed the deal.
Yuen and four other Gemstar officers serve on the board,
and UVSG contended that they are trying to preserve their jobs.
Yuen said in an interview that those claims were
"groundless," adding that his contract calls for a payout in the event of a
change in control "that would not make me concerned about getting a job in the next
few years."
There was no immediate reaction from UVSG, which claimed 39
percent shareholder support for the offer that it made July 2 and that it made public July
6. Analyst Mark Riely of Media Group Research Inc. said he could not predict what would
happen next.
"We know that John Malone doesn't like to
lose," he said. Malone is chairman and CEO of Tele-Communications Inc., which
controls UVSG.
Gemstar's shares rose about 2 percent in early trading
Thursday, while UVSG's shares dropped about 5 percent.
UVSG president Peter Boylan said previously that UVSG could
either continue battling Gemstar in court over copyright disputes, or try to cut a side
deal with Gemstar licensee Microsoft Corp. if the buyout effort failed.
Boylan had said that UVSG didn't plan to bid more than
$2.8 billion for Gemstar.
Yuen said he wasn't sure what UVSG would do next,
either. But he added that he's confident that UVSG will end up having to license
Gemstar's technology, either directly or indirectly through Microsoft, and he said
he'd be happy to see a UVSG-Microsoft deal because that would mean more royalties for
Gemstar.
Yuen would not say what the board would consider a fair
offer, since "the company is not for sale." He added that the board rejected the
UVSG offer because of financial, legal and regulatory concerns. Gemstar said it was
advised by Lazard Freres & Co. LLC.
UVSG -- in which TCI will share control with News Corp.
after a pending $2 billion acquisition of News' TV Guide closes -- wants
access to Gemstar's 60-plus patents in areas related to interactive program guides.
UVSG is focusing more and more on its Prevue Networks Inc. core, including Prevue
Interactive, the "navigator" used to sort through the channels that are
available through digital set-tops deployed by TCI and other operators.
Boylan has also said that UVSG wants to tap the
consumer-electronics market, which is Gemstar's primary focus. Gemstar bought
StarSight Telecast Inc., and its technology has been integrated into TV Guide Plus+,
Gemstar's interactive program guide that is installed in television sets.
Gemstar's VCR Plus+ system for video recording is installed in VCRs and TVs.
Patent disputes between Gemstar and UVSG are blamed in part
for the reluctance by some cable operators to choose either company's interactive
program guide. Gemstar and UVSG had agreed to a joint venture that would have wiped out
the lawsuits, but the venture foundered after TCI insisted on intellectual-property
protections in the event of a change in control at Gemstar, executives familiar with the
talks said. TCI had committed to deploy the joint venture's guide.
Last Monday, after acknowledging the UVSG bid,
Gemstar's board approved a shareholder-rights plan -- a "poison pill"
designed to ward off unwelcome suitors by making a hostile takeover more costly.
Gemstar also disclosed agreements with big-name partners
last week that, while in the works for several months, appeared to be timed to make
Gemstar look stronger as a stand-alone company.
Gemstar announced a deal with NBC to develop
interactive-program-guide features for consumer-electronics devices and direct-broadcast
satellite boxes. It also widened its existing arrangement with Microsoft.
NBC agreed to place advertisements on the Gemstar guide,
and it will develop local-news programming and other content for the guide, to be
distributed over part of NBC's broadcast signal.
The expanded Microsoft agreement includes provisions for
technical and marketing support that Yuen said should accelerate deployment of guides in
advanced set-tops. It also gives Gemstar a bigger share of ad revenue from interactive
guides that the companies develop.
