Rovi Corp., the provider of interactive TV guides for cable and satellite services, agreed to buy Sonic Solutions Inc. for about $775 million to expand in digital entertainment services.
Sonic investors may sell their shares to Rovi for $14 each or receive 0.2489 Rovi share for each of Sonic that they hold, according to a statement on Rovi’s website yesterday. Sonic directors and senior management owning about 11.2 percent of the company’s equity have accepted the offer.
The combined company will be in a better position to help customers such as Best Buy Co. or Blockbuster Inc. sell movies and TV shows online and compete with Netflix Inc. and Amazon.com Inc., Sonic Chief Executive Officer David Habiger said. Rovi licenses its TV guides to partners including pay-TV services, while Sonic has deals with Hollywood studies and provides streaming services so people can get movies and shows on demand.
“You’ve got a dramatic shift going on in the way people access content,” Habiger said in an interview. “They are moving from physical discs to streamed digital content.”
The offer of $14 a share is 25 percent more than Sonic’s closing price in Nasdaq Stock Market trading yesterday. The combined company will seek to target higher-value subscribers of digital entertainment content, Rovi said.
Rovi plans to use technology available to its TotalGuide customers to power Sonic’s RoxioNow services, a move that will “result in accelerated uptake of premium content,” according to the statement.
The proposed acquisition of Sonic, based in Novato, California, has an enterprise value of about $720 million, the statement said. Sonic had 48.8 million shares outstanding as of Nov. 8, excluding options, according to a regulatory filing. Rovi plans to pay cash for 55 percent of Sonic and stock for the rest. Sonic had about $55 million in cash as of Sept. 30.
Sonic jumped $3.22, or 29 percent, to $14.42 at 4 p.m. New York time in Nasdaq Stock Market trading. The stock has gained 22 percent this year. Rovi, based in Santa Clara, California, fell $1.10, or 1.9 percent, to $57.26. The stock has risen 80 percent.
JPMorgan Chase & Co. is the financial adviser to Rovi in the proposed transaction, while Sonic was advised by William Blair & Co. and Morrison & Foerster LLP.
The transaction values Sonic at about 40 times the company’s estimated earnings for the next full fiscal year of 35 cents a share, according to the average estimate of six analysts surveyed by Bloomberg. That compares with the 36 times next year’s estimated earnings that Sonic paid for San Diego-based DivX Inc. in October.
Jefferies Group Inc., which advised Sonic on the DivX transaction, said in July that the median company in the multimedia and embedded software industry trades at about 19 times next year’s estimated earnings.