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Why the Tivo Buyout Rumor Rings True

Mari Silbey

In the waning hours of 2017, the M&A rumor mill rumbled again. Private equity buyers reportedly made offers to acquire Tivo, the video platform company that just over a year ago merged with metadata giant Rovi. The suggested takeover price? Slightly more than $20 per share, a $6 premium over Tivo's then-current trading rate.

The company's stock jumped 10% on the news.

So far, TiVo Inc. (Nasdaq: TIVO) has remained mum on the acquisition rumor, with no response to Light Reading's request for comment. However, the idea of a Tivo takeover, which The Street attributes to "a person familiar with the situation," makes significantly more sense than much of the M&A gossip that goosed the market last year.

For starters, Tivo boasted several wins in late 2017, all of which should make it attractive to buyers looking past the near-term horizon. Those wins included a victory in Tivo's patent lawsuit against Comcast Corp. (Nasdaq: CMCSA, CMCSK) and new long-term deals with Altice USA , AT&T Inc. (NYSE: T) and Liberty Global Inc. (Nasdaq: LBTY).

The lawsuit win against Comcast means the cable operator can't continue to enable a feature with its X1 service that lets users schedule DVR recordings remotely. If the company wants to offer the feature in the future, it will either have to find a workaround solution or pay a healthy licensing fee to Tivo. Tivo already makes a mint from similar deals and counts nine of the top 10 pay-TV providers in the US among its licensing customers. Comcast has been the only holdout. (See Tracking TiVo's Ups & Downs.)

Meanwhile, Tivo's recent large customer contracts all extend well into the future. The Liberty Global agreement signed in October is described as a multi-year extension, while the September AT&T deal runs through 2025 and the December Altice arrangement is set for six years.

Beyond the positive financial news, however, Tivo is facing a number of unknowns. And this is the second reason that an M&A transaction sounds plausible. A dose of uncertainly presumably keeps the price of a deal from jumping too high and also lets potential new owners dream up their own strategies for Tivo's corporate direction.

Want to know more about video and TV market trends? Check out our dedicated video services content channel here on Light Reading.

The company, for example, remains in the retail hardware business today even though it stopped breaking out retail subscription numbers sometime in 2016 after years of declines. New owners would get to decide whether to jettison the retail business altogether or look for a way to revamp it to make Tivo's boxes more competitive with devices like the Roku and Apple TV. (See Tivo Tips New Bolt Boxes.)

Tivo's leadership has also gone through a shakeup recently. Tivo lost COO Pete Thompson in October, just a year after he was hired to help steer it through the integration of Tivo and Rovi. Then former AT&T executive Enrique Rodriguez joined the company as CEO in November, after previous CEO Tom Carson announced his plan to retire earlier in the year.

New leadership equals new opportunities for strategic change.

One final note. Despite Tivo's merger with Rovi in 2016, the company is still relatively small compared to many of the companies it does business with. Tivo has a market cap of $1.89 billion, whereas many of its customers' valuations reach into the tens, if not hundreds, of billions of dollars. Any private equity buyout could be merely a prelude to a deal to sell Tivo to a larger player -- part of a never-ending drive to create greater scale in media and telecoms.

Will 2018 play host to another major Tivo transaction? The jury's still out, but the signs in this case are arguably favorable. And 2018 is just getting started.

— Mari Silbey, Senior Editor, Cable/Video, Light Reading

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