• by Erik Sass  @eriksass1, January 30, 2008

The proposed sale of Gemstar TV Guide to Macrovision Corporation for $2.8 billion, announced in early December, has a rough road ahead. That's due mostly to opposition from Macrovision shareholders who are leery of TV Guide's declining readership and stock price. They also cite analysts who say Macrovision, with little experience in publishing, is not prepared to make full use of Gemstar's assets, or turn around its struggling print publication.

In the six-month period from March-September 2007, TV Guide's newsstand sales tumbled 26% and overall circulation slipped 12% to about 3.26 million, compared to the same period in 2006, according to the Audit Bureau of Circulations.

One Macrovision shareholder, Loeb Partners, which owns a 2.1% stake, said it will vote against the deal at a meeting loosely scheduled for some time in March. Still, Gemstar executives are hopeful the deal will go through.

When the cash and stock deal was first announced, the cash portion represented a 6.8% premium over the current value of Gemstar's stock, and the stock portion represented an 11% premium (that is, a discount) on the Macrovision stock offered. Since then, however, the value of Gemstar stock has fallen from around $6 per share in December to under $4.40--a loss of more than 25%. Meanwhile, news of the deal sent Macrovision shares tumbling as well, from about $25.50 before the deal was announced to around $16.50 at the time of writing.

The losses are a signal that investors oppose the deal and doubt it will go through, according to stock market analysts. By way of contrast, stock prices have generally risen at other big media companies after a merger or buyout is announced. For example, the stock price of Clear Channel Communications rose from about $28 to $35 when the buyout by Thomas H. Lee Partners and Bain Capital was first announced in April 2006.