The new merged entity will take the Xperi name but will continue to sell entertainment services under the TiVo brand along with Xperi’s DTS, HD Radio, and IMAX Enhanced brands.
The all-stock deal will combine TiVo’s DVRs and other consumer products, entertainment metadata and patent portfolio with Xperi’s entertainment and semiconductor products and intellectual property. TiVo had previously planned to separate its product and patent-licensing businesses in April 2020 but opted to merge with Xperi instead.
The combo will create a company with more than 10,000 patents and patent applications with “minimal licensee overlap,” according to TiVo and Xperi. They claim the new Xperi will be one of the largest technology-licensing companies in the world, spanning entertainment content, consumer electronics and semiconductors.
“This landmark combination brings together two highly complementary companies poised to set the industry standard for user experiences across the digital value chain,” Jon Kirchner, CEO of Xperi, said in a statement.
Under the merger pact, Kirchner will serve as CEO of the new company after the deal closes and Xperi CFO Robert Andersen will assume the chief financial officer role. TiVo CEO David Shull, who came on board this past May to oversee the then-planned separation of the business, will continue with the newly merged entity as a strategic adviser.
On the product front, the companies see an opportunity to integrate TiVo’s content aggregation, discovery, and recommendation tech with Xperi’s product families in the home, automotive, and mobile device ecosystems. “TiVo has always been the company that brings entertainment together,” Shull said in a statement. “Now, we can significantly expand our mission,” adding that the combined company “will transform the home, car, and mobile entertainment experience for the consumer.”
It’s the latest chapter in the history of TiVo, which was a pioneer in the DVR category but struggled to sell its devices in the consumer market. The company has sold TiVo-branded software and technologies to some cable operators, including Cogeco, Mediacom, Suddenlink and Virgin Media; last year TiVo began shifting away from selling hardware to running its software on third-party devices. TiVo also has patent-licensing deals with pay-TV operators including AT&T, Altice USA, Charter, Cox, Sky and Verizon but has been locked in long-running legal dispute with Comcast.
Rovi, a provider of entertainment metadata and related services, acquired TiVo for $1.1 billion in 2016 and adopted the DVR maker’s name, eyeing the power of their combined patent holdings.
Xperi was formerly called Tessera Holding, which changed its name in February 2017. Xperi’s biggest single customer has been Samsung Electronics, which represented 38% of its revenue for 2018. Other customers and licensees include Huawei, LG, Microsoft, Nikon, Panasonic and Sony.
The $3 billion figure represents the combined enterprise value of TiVo and Xperi, the companies said. Technically, Xperi is the acquiring party and the all-stock deal values TiVo at about $1.2 billion based on the Dec. 18 closing price of TiVo shares. The fully diluted equity value of the combined company would be $2.4 billion under the proposed tie-up.
Under the terms of the merger agreement, Xperi shareholders will own approximately 46.5% of the combined business and TiVo shareholders will own approximately 53.5% following the deal close. Shareholders of each company will have their stock converted into shares of the new parent company based on a fixed exchange ratio of 0.455 Xperi share per existing TiVo share; that implies a 15% premium to TiVo’s shareholders based on each of Xperi’s and TiVo’s 90-day volume-weighted average share prices. For the 12 months ended Sept. 30, the two companies together had $1.09 billion in combined revenue and billings and more than $250 million in operating cash flow on a pro-forma basis.
The companies said they expect to achieve at least $50 million of cost savings (on an annual basis) by year-end 2021 by combining their respective product and IP-licensing businesses. The new Xperi will be based in San Jose, Calif. With the merger, the companies’ debt will be refinanced on a combined basis; to do that, Xperi and TiVo said they have secured $1.1 billion in financing from Bank of America and Royal Bank of Canada.
As part of the deal with Xperi, TiVo’s board approved a stockholder rights plan designed to let the combined entity receive tax benefits from TiVo’s $1 billion federal net operating losses (NOLs) under U.S. tax code.
The deal has been approved by the boards of both companies and is expected to close during the second quarter of 2020, subject to regulatory and shareholder approvals. Centerview Partners was the financial adviser to Xperi and LionTree Advisors served as financial adviser to TiVo in the transaction.