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Media Firms' Union Would Mean One-Stop Shopping

Technology: United Video's bid for Gemstar could lead to single source for TV listings.


Take the company that produces TV Guide and the on-screen television listing service Prevue, combine it with the firm that created VCR Plus, and here's what you'd get: a single source for navigating through hundreds of television channels in print, over the airwaves, via satellite or online.

That's the vision of United Video Satellite Group President Peter C. Boylan III, whose company this week revealed an unsolicited bid for Gemstar International Group of Pasadena. The proposed $2.8-billion offer underscores the convergence of traditional TV broadcasting, cable and satellite services with the consumer electronics that make it easier for people to use them, analysts said.

Gemstar declined to comment Tuesday on the $45-per-share offer except to say its board would review it.

Murray Arenson, an analyst with Hoak Breedlove Wesneski in Dallas, said consumers would benefit if United Video buys Gemstar and brings an end to years of litigation that have prevented United Video from adding features to its products.

"If you put the two companies together, you dominate the interactive-program-guide arena and provide an even wider arena to roll out your products and services," he said.

Gemstar and United Video, based in Tulsa, Okla., formed a joint venture in January to market technology and data services for interactive program guides to cable and satellite television operators. That venture, called Interactive Prevue Guide, collapsed in March when the two sides could not agree on final terms.

That same month, United Video proposed a friendly merger between the two companies in order to bring more than 100 key patents under one roof and put an end to long-standing litigation brought by a Gemstar subsidiary involving claims of alleged patent infringement, Boylan said. At the time, Gemstar's stock was trading at $31.50, so the $45-per-share offer represented a 43% premium. By Monday night, when the offer was revealed by the Wall Street Journal, Gemstar's stock had climbed to $42.50 and the premium was reduced to about 6%.

On Tuesday, Gemstar's shares rose as high as $46.25 before ending at $43.63, up $1.13 in Nasdaq trading. United Video's shares sank $3.63 to close at $35.75 on the same market.

Gemstar made a name for itself developing VCR Plus, which allows VCR users to record programs by punching in a single code instead of navigating through layers of menus. The VCR Plus technology is also being adapted to work with government-mandated V-chips so that parents can block or select specific programs using codes, said Tony Tam, Gemstar's director of engineering.

The 8-year-old company has also developed technology that allows customers to index all of the programs they record on videotapes and to browse through program listings on their TV screens. Tam said Gemstar has licensed this technology to Microsoft, which included a TV program guide feature in its latest Windows 98 operating system software.

By buying Gemstar, United Video would gain instant access to about 60 patents behind these two core technologies and adapt them for other systems such as digital videodisc players, Boylan said.

"They have a nice consumer electronics business that we don't have, and we have a very solid business in cable and satellites," he said. "Being able to put all of that together and provide one-stop shopping for cable and satellite companies and consumer electronics companies is what [consumers] want."

The other alternative is for United Video to create its own technology from scratch, but that would take much longer, and "we think speed to market is what our customers want," Boylan said.

Boylan said United Video has persuaded owners of 39.4% of Gemstar's stock to back the buyout, including Chairman Thomas Lau, whose 24% stake in the company makes him the largest shareholder. Other major backers include consumer electronics firm Thomson, which owns a 7.9% stake including warrants, and media giant Viacom, which has 6% of Gemstar's shares. United Video itself owns nearly 1.5% of Gemstar, Boylan said.

That means United Video only needs to persuade holders of an additional 11% of Gemstar's stock to agree to a deal in order to gain the backing of a majority of shares, and Boylan said he was optimistic the company could do so if Gemstar's board doesn't agree to a merger itself.

Both Lau and Gemstar Chief Executive Henry Yuen declined to discuss the situation.

In recent months, United Video has made deals to expand its core business of providing television program guides to cable and satellite operators. Last month, it agreed to buy TV Guide magazine and related properties from Rupert Murdoch's News Corp. for $2 billion. That deal gives News Corp. control of about 40% of United Video.

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