TiVo is scrapping plans to split its product and licensing divisions. Instead, it’s merging with the entertainment tech firm Xperi. The new, $3 billion company will take on the Xperi name, but it will continue to sell TiVo-branded products.
The new entity will merge TiVo’s content aggregation, discovery and recommendation capabilities with Xperi’s home, automotive and mobile device licenses. According to TiVo, the two companies hold more than 10,000 patents and applications with minimal license overlap. That intellectual property will make Xperi one of the largest licensing companies in the world.
“The combined company will have a unique industry platform to address an ever-increasing consumer desire to enjoy entertainment anywhere, anytime, on any device,” TiVo said in a press release. The all-stock deal values TiVo at about $1.2 billion, and as a result of the merger, the companies expect to save at least $50 million by the end of 2021.
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.
