The ghost of past-deals-gone-wrong haunts Rupert Murdoch’s celebration of his imminent $5 billion (Rs19,700 crore) takeover of Dow Jones & Co. Inc.—publisher of The Wall Street Journal and a minority investor in breakingviews.com, which is owned by Breakingviews Ltd. (WSJ has an exclusive content partnership in India with Mint.)
Last Friday, Gemstar-TV Guide International Inc., in which News Corp. owns a 41% stake, agreed to be acquired by Macrovision Corp., which provides solutions and software designed to prevent the piracy of media content. The deal has crystallized value destruction for News Corp.
First, rewind the tape to News Corp.’s $3 billion takeover in 1988 of Triangle Publications, at the time the parent of TV Guide and a handful of other magazines. Three years after buying Triangle, Murdoch offloaded some of its smaller properties, including Seventeen magazine, which is owned by Hearst Communications Inc. and the Daily Racing Form, and ended up harvesting about $650 million in cash.
That left News Corp. with Triangle’s flagship TV Guide, whose future looked promising back before the advent of digital cable programming. In 1998 Murdoch combined TV Guide with a business owned by John Malone’s Liberty Media Corp. As part of that deal, News Corp. received $800 million in cash and a shared interest in the company. Malone and Murdoch then sold the business to Gemstar, which specialized in onscreen programme guides, for stock. That gave the duo stakes of a little more than 20% each in the new Gemstar-TV Guide.
But Murdoch was not content with such a small interest. So in 2000, he managed to nab Malone’s remaining stake in Gemstar. The price—he swapped him a slug of News Corp. stock valued at about $6 billion. Over the years since then, Malone added to that stake, putting him in a position to potentially challenge Murdoch’s control of his empire.
As a result, News Corp. agreed to buy Malone out as part of an asset swap earlier this year that will hand virtual control of satellite television broadcaster DirecTV, owned by the DirecTV Group to Malone’s Liberty Media.
Unfortunately for Murdoch, shortly after taking control of Gemstar seven years ago, the tech bubble burst. With it, Gemstar’s strategy fizzled. A plan to revamp TV Guide as a celebrity magazine also flopped. Worse still, an accounting scandal that saw Gemstar’s founder Henry Yuen plead guilty for obstruction of justice sent the company’s stock into a nosedive from which it has never recovered.
Now, flash forward to last Friday. Macrovision’s proposed takeover values Gemstar at about $2.1 billion. The deal was structured to give Gemstar shareholders a choice of accepting cash, worth a maximum of $1.55 billion, or stock. But because Macrovision stock plunged as much as 28%, the value of the equity consideration of the deal has fallen, too. In total, News Corp.’s stake is worth about $1 billion.
So what’s the sum total destroyed by the Gemstar-TV Guide debacle? News Corp. won’t tally up the numbers, though it did take a charge of $6 billion on the stake five years ago.
And it’s hard to be exact given any dividends that might have been paid or other small divestitures that took place over the years.