TVG's Parent Company Up for Sale

[garyoz]

Gemstar TV Guide, the company that owns TVG is on the block--The offering is aimed at private equity buyers. Press release link: http://www.gemstartvguide.com/PressRelease/tabid/128/Default.aspx?CID=517

This is more than likely not good for TVG. The majority share holder of Gemstar is News Corp (FOX)--which has deep pockets and owns other networks (e.g., Fox Sports). IMHO any buyer would look at selling off TVG--it really doesn't fit with the rest of the company. A difficult time to value TVG with all uncertainty with Magna, CDSN, etc.

[rrbauer]

And, the Gemstar sale may involve being sold in pieces rather than as a whole. This approach will require them to put a price on the TVG asset. So, maybe CD got into bed with Magna at the wrong time now that getting 100% of TVG is a possibility?

[Grits]

The News Corporation is Rupert Murdoch. Who, as everyone knows, has more tv, entertainment, newspaper, etc, media holdings than anyone in the world--

His kingdom having worldwide reach, a great amount of which is firmly in place in China, where no other outside interest have had success.

He, at present, is vigorously attempting the purchase of the Dow Jones Company, the parent company of the Wall Street Journal. Which would mean, goodbye to the finest newspaper in the world.

TVG would hardly qualify as a blip on Murdoch's radar. Gemstar and TVG struggling would not be a favorable scenario.

[garyoz]

The News Corporation is Rupert Murdoch. Who, as everyone knows, has more tv, entertainment, newspaper, etc, media holdings than anyone in the world--

His kingdom having worldwide reach, a great amount of which is firmly in place in China, where no other outside interest have had success.

He, at present, is vigorously attempting the purchase of the Dow Jones Company, the parent company of the Wall Street Journal. Which would mean, goodbye to the finest newspaper in the world.

TVG would hardly qualify as a blip on Murdoch's radar. Gemstar and TVG struggling would not be a favorable scenario.


Agree with the above except "goodbye" to the finest newspaper in the world. Times of London has done just fine under Murdoch's ownership.

In terms of TVG, it is virtually impossible to put a value on the asset until it is clear if NYRA renews and if the revenue split model with exclusive tracks will stay in place.

The Gemstar acquisition has not worked out for News Corp. I don't think TVG (and for sure not HRTV) can be considered business successes either. It all comes down to discounted cash flow--which is tied to the revenue split model.

[gIracing]

Agree with the above except "goodbye" to the finest newspaper in the world. Times of London has done just fine under Murdoch's ownership.

In terms of TVG, it is virtually impossible to put a value on the asset until it is clear if NYRA renews and if the revenue split model with exclusive tracks will stay in place.

The Gemstar acquisition has not worked out for News Corp. I don't think TVG (and for sure not HRTV) can be considered business successes either. It all comes down to discounted cash flow--which is tied to the revenue split model.

very good breakdown.

something has to be kept in mind however... neither one of these compaines are 10 years old. Not making a profit (yet) isn't a new thing for startup compaines. HRTV isjust over 4 years old. In the beginning of a company it's about growth, then once you have grown, it's about turning black (profit). anyone who expected these, eihter one of these, comaines to come out the box swiinging with profits were sadly mistaken.

I think Magna Gets it a little bit better than GemStar does with TVG. TVG model of exclusive track coverages worked great when tracks had no idea what they were doing and they were the only show in town.. they were just happy that someone was there to broadcast.. but now there are options, other options on the table and it doesn't seemed like TVG has adjusted their marketing or sales strategy.

I see Horse racing taking off in the next 10 years with the internet and broadcast feeds and ADW being the reason why. TVG wuoldn't be that bad of an investment for someone who liked to gamble (no pun intended).

[bigmack]

He, at present, is vigorously attempting the purchase of the Dow Jones Company, the parent company of the Wall Street Journal. Which would mean, goodbye to the finest newspaper in the world.
How are you able to reach that conclusion?

News Corp stands to pocket 1.5 billion if they find a buyer at $8.

[ponyplayerdotca]

ADW - what does this acronym stand for?

I've been trying to guess for weeks without succumbing to writing this post.

Alas, I have given in.

[bigmack]

ADW - what does this acronym stand for?
I've been trying to guess for weeks without succumbing to writing this post.
Alas, I have given in.
ADW - Advance deposit wagering

[ponyplayerdotca]

Thank you Big Mack. Very appreciated.

[gIracing]

How are you able to reach that conclusion?

News Corp stands to pocket 1.5 billion if they find a buyer at $8.


what makes you think they can? if we are throwing magical numbers out ther, why not just make it an even 10?

[bigmack]

what makes you think they can? if we are throwing magical numbers out ther, why not just make it an even 10?
Talk to Deutche Bank and Dow Jones about how "magical" 8 is, wise guy.

[gIracing]

hey, keep it clean, no name calling.

But for a company that has not seen a drop of profit since it's inception, can turn around and just get a company to pay 1.5 BILLION dollars more than what it's worth.. i'd like to see the day. it just doesn't work like that. if the company was valued at that in reality it wouldn't be in the debt it is in now

[DJofSD]

A minor note: Murdock and Fox are focusing on having their own financial news channel. Stay tuned.

[garyoz]

How are you able to reach that conclusion?

News Corp stands to pocket 1.5 billion if they find a buyer at $8.

"pocket 1.5 billion" ...sorry there is the issue of the original purchase price of the equity investment in Gemstar TV Guide, which at one point traded at more than $100 per share. There is also the cost of capital associated with the Gemstar investment.

Gemstar TV Guide has been a disaster including an SEC investigation over fradulent accounting. I'm pretty sure there will be a write-off by News Corp if they are able to sell this asset.

[bigmack]

News Corp has already written off 6 bil. By pocket the intent was to say that's what they would step off with. :bang:

[gIracing]

"pocket 1.5 billion" ...sorry there is the issue of the original purchase price of the equity investment in Gemstar TV Guide, which at one point traded at more than $100 per share. There is also the cost of capital associated with the Gemstar investment.

Gemstar TV Guide has been a disaster including an SEC investigation over fradulent accounting. I'm pretty sure there will be a write-off by News Corp if they are able to sell this asset.

exactly. trust me, you don't want to get in war over finance... you will loose.

This isn't a coo to try to rake profit by News Corp. This News Corp saying the hell with it, we gave it a shot, let's cut our losses and go onto something more profitable.

[garyoz]

exactly. trust me, you don't want to get in war over finance... you will loose.




Doubt it....

So where does your pocket $8 billion analysis come from? Show us the math.

[gIracing]

I used to own a company that I started and was the defacto CFO.. I have since sold it, at least my share of it and I basically watch horse racing all day long, thinking about buying some horses here soon. I know corp finance, I had to.

From a financial position, the fact that there has been coruption in the company.. I am not even going to touch their statements until that issue has been cleared up. right now, no one knows what they are worth exactly becuase we don't know exaclty what if anything has been changed or altered, however at the same time we do know that they aren't a profitable company.

it's really as simple as this; you don't loose money for YEARS, then sell the company that has a drastic overhead, AND could possibly loose it's backbone tracks (NYRA) and profit 1.5 billion dollars. if I were the investors in the company that bought GemStar, I would dump quick.

again, I don't like getting into mud slinging wars.. it's immature and pointless. so let's don't

[ELA]

This is what you are arguing about? LOL. Valuation methodolgies, and everything that goes along with that is merely going to satisfy a means to end. Willing buyer/willing seller, full and adequate disclosure, neither party under duress -- oh wait, this is Rev. Ruling 59-60, LOL. Studing for an LLM is like sticking knitting needles into your eyeballs . . . multiple times, LOL.

I find the entire situation an interesting read, but even more interesting is the entire simulcasting, account wagering, etc. environment. I think it's something akin to the new frontier -- or the dying frontier, depending on where you think this is in it's life cycle. I've never used any of these services so I certainly don't know one from the other, who is better, etc. Nor do I fully understand the legal aspects of the Interstate Horseracing Act of 1978.

Although it's a rather rhetorical question, I often find myself asking will any of these companies survive the atrophy, attrition and in-fighting -- and will they survive the off-shore, rebate, etc. shops, and whatever else they may find.

Anyway, interesting points, thread, and discussion.

Eric

[gIracing]

TVG is not a bad investment, however it is a company that needs to be restructured in the worse way. they have too much overhead, an old business model that's outdated and they are loosing key contracts left and right

[garyoz]

This is what you are arguing about? LOL. Valuation methodolgies, and everything that goes along with that is merely going to satisfy a means to end.


No arguing--just trying to foot the numbers. $8 billion is way too much. Here's an article that says a strategic buyer paying $10 per share (current price $5.98--so that is a heck of a premium) would value the total company at $3 billion.
http://www.usatoday.com/money/media/2007-07-10-gemstar-tv-guide_N.htm?csp=34

News Corp owns 41%, so in a best case (equity analyst's dream), News Corp. would generate about $1.2B--but is much more likely to see around $800mm. I'm not sure what they originally paid for TV Guide and Gemstar, plus all the money they have invested in TVG and repositioning TV Guide. Most of the value is associated with the TV Guide assets--I remember reading that TVG is cash flow positive. Probably need to check the line of business footnote in the 10-K and see what if any details they provide.

The easiest way to get a ballpark on the value of TVG is to use a multiple of EBITDA (operating cash flow)--typical cable network that is struggling might go for 15-20X's EBITDA--depending if there is a strategic buyer--like a group of racetracks then the multiple would go up (tied to a net present value of the forecasted EBITDA). Of course, if the exclusive contracts go away, then cash flow would take a hit. IMHO, much depends on the NYRA relationship.

[ELA]

No arguing--just trying to foot the numbers. $8 billion is way too much. Here's an article that says a strategic buyer paying $10 per share (current price $5.98--so that is a heck of a premium) would value the total company at $3 billion.
http://www.usatoday.com/money/media/2007-07-10-gemstar-tv-guide_N.htm?csp=34

News Corp owns 41%, so in a best case (equity analyst's dream), News Corp. would generate about $1.2B--but is much more likely to see around $800mm. I'm not sure what they originally paid for TV Guide and Gemstar, plus all the money they have invested in TVG and repositioning TV Guide. Most of the value is associated with the TV Guide assets--I remember reading that TVG is cash flow positive. Probably need to check the line of business footnote in the 10-K and see what if any details they provide.

The easiest way to get a ballpark on the value of TVG is to use a multiple of EBITDA (operating cash flow)--typical cable network that is struggling might go for 15-20X's EBITDA--depending if there is a strategic buyer--like a group of racetracks then the multiple would go up (tied to a net present value of the forecasted EBITDA). Of course, if the exclusive contracts go away, then cash flow would take a hit. IMHO, much depends on the NYRA relationship.

I think this is a futile aspect of the discission and I really didn't want to get into it, however, in actuality, unrelated to all the commentary -- from strictly a valuation methodology, I would disagree. Cash flow, per se, is perhaps the most common method of valuation, however, I don't think there is one valuation firm in the world that would consider "ballpark" as to landing on value using this methodology.

The accounting conventions are irrelevant, I think that's obvious. As would be non-cash charges -- however, the related tax implications can be crucial -- and TVG proved that. If anyone wants to see that, read the financials. This would relate to a buyer in many areas, just one being amortization. If there was premium to shareholders equity, one could be forced to ammortize over a term certain # of years -- vis a vis goodwill -- according to GAAP. So, while operating cash flow can be a focus, it often makes sense to momentarily ignore accounting conventions -- but this could mask or distort cash strength.

Most valuation experts use "cash flow" to get a "ballpark" value in industries that have large early-on, up-front, capital expenditures. This is often coupled with large amortization liabilities, hence my comments above. It is extremely common to have cable TV companies report negative earnings and cash flow for many years due to massive capital expenses -- even though their cash flow has grown, and often significantly. Thus, the ability to generate cash is very distorted and often hidden.

All this being said -- while EBITDA is the most common methodology, a valuation expert would merely look at that because it's easy and diligent. It is much more common to realize that it is not reflective of value per se. Also, let's remember that EBITDA is a "discounted cash flow" model.

For "cash flow" purposes, a much more efficient, effective, and powerful methodology -- one which would be more reflective as well -- would be EVA or Economic Value Added (note to include the appropriate TM or applicable logo here, LOL), which was developed by Stern Stewart.

Anyway, I really wanted to comment and ask about what I see as the real issues -- and that is s certainly not about value, LOL. I still find myself asking are these companies going to be around long-term. 5 years? 10 years? Maybe I am missing the big picture here, but isn't the easiest way to solve all of these problems (and other related ones as well) -- simulcasting, at-home wagering, rebate shops, etc. -- isn't the easiest way simply to lower the take-out and allow the tracks to model their product like the cable companies? What am I missing?

In the world of cable -- you have your cable company, Direct TV, Dish Network, and aren't there some others as well? I know there are certain channels that don't cross over, but isn't HBO available on all of them?

Maybe it works, maybe it doesn't -- but it can't remain the same. Status quo will not survive. Lead, follow or get out of the way.

Eric

[gIracing]

that brings up an excellent point.. what if the individual tracks got smart and said... why pay you (TVG, HRTV) to do something that we can do and save money?

[garyoz]

There is this issue called "clearance" or getting your signal (channel) on a cable or satellite system. There have been numerous posts about it on this board if you want to do a search. The cable companies usually pay to carry a basic channel (espn per sub per month) or split revenues with pay channels(HBO, Showtime, etc). It is my understanding that TVG and HRTV had to pay to have their channels carried (the reverse). There are many more channels seeking distribution than bandwidth available--esp. with the demands from HDTV.

Finally, cash flow is the correct way to approach cable channels in terms of valuation--it is the industry standard. I've published in academic books on this topic. True my comments above are quick and dirty--just meant to provide an overview. But enough of the debate.

[ELA]

There is this issue called "clearance" or getting your signal (channel) on a cable or satellite system. There have been numerous posts about it on this board if you want to do a search. The cable companies usually pay to carry a basic channel (espn per sub per month) or split revenues with pay channels(HBO, Showtime, etc). It is my understanding that TVG and HRTV had to pay to have their channels carried (the reverse). There are many more channels seeking distribution than bandwidth available--esp. with the demands from HDTV.

Finally, cash flow is the correct way to approach cable channels in terms of valuation--it is the industry standard. I've published in academic books on this topic. True my comments above are quick and dirty--just meant to provide an overview. But enough of the debate.

I am very sorry to say that you clearly missed my point. It is not cash flow that will be the correct way to approach cable companies in terms of valuation -- for all the reasons I stated above, and none of the points were addressed at all by your post. Yeah, sure it's an overview, thanks for nothing, but nobody is going to by a company based upon a valuation that is based upon cash flow -- again, for all of the reasons I stated.

It's not the industry standard. It's standard for someone to look at it, but not for reliance upon vis a vis a formal and relied upon valuation. Would a formal valuation use that to signify and justify their valuation? It might be on variable of about 15. Would the IRS accept a cash flow analysis on a 706 or 709? Would a Rev. Rul (ie: Rev. Ruling 59-60 -- which is in fact the standard and sets the bar for valuation determination) issuance use cash flow analysis as a standard -- an exclusive standard? Come on, you are having a discussion on a BB and trying to tell us that a good way to get a handle on what this company is worth is to look at "cash flow"? In all due respect, that is extremely and naively myopic. To say it's the industry standard is merely telling me the sky is some shade of blue. It could be interpreted as true, but it's omitting a great deal of facts.

Nobody will buy this company based upon a myopic cash flow analysis, again for all of the reasons I stated above.

This is truly an exercise in futility. This debate should take place at Wharton where academics can flex their proverbial intellectual muscle.

Carry on folks.

Eric

[ELA]

that brings up an excellent point.. what if the individual tracks got smart and said... why pay you (TVG, HRTV) to do something that we can do and save money?

See, that's what I am talking about. Now, would CD sell their signal to every competitor? Shouldn't they want to? And the rebate shops would be put out of business if you lowered the takeout.

Would Magna do the same? NYRA? Obviously this won't work exactly like the cable industry -- but again, isn't conceptually something like this doable? HBO is seen across the various providers and CD tracks, Magna, NYRA, et al could be as well. I'd bet about $100 million that it's far more complex than it sounds, but isn't the industry's health worth it? Just imagine how many other issues this could address.

I wonder what this would mean to various OTB situations. Would they be treated any differently?

Eric

[ELA]

By the way -- while I am not a simulcasting/account wagering expert, isn't there also a cost of doing business issue here; for the gambler that is?

What about the list of creditors for the S. Dakota fiasco? Are there others as well? Personally, I don't care about rebates -- my focus is price and cash! LOL. However, if all of the signal providors were able to keep each other in check, and there checks and balances, wouldn't it be in everyone's best interest to "sell" or distribute the signal to each other?

Eric

[gIracing]

Cash flow is not a very liable way to look at the true value of a company. Basic Economics. Libilities, Assets, with cash flow being one of the many varibles.

TVG has very little (and dwendling in the since of exclusive contracts) assets, alot of libilities and because of the business model, the cash flow is not necessary the greatest on earth, although not bad.

To me it just make sense. it's like paying you 3 dollars for a galss of lemonade when the store down the street has sugar and lemons on sale for .50 cents each...

A way I wouldn't mind doing it is this.... You have the Magna Tracks on One channel, you have th NYRA tracks on another channel, and the rest can do whatever in the hell they want. Charge a dollor, 2 dollars a month to access the channel on satiliate or cable, whatever, make it pay per view for all I care. Each channel has it's own ADW site, and as ong as I can actually sign up with each one of them, that's something I can live with. And they just broadcast the damn feeds on PPV.

Shoot it wouldn't kill me if I had to pay an additional 10 bucks a month for Horse Racing, plus all of this nonsense would be done with. TVG is in a lot worse spot than HRTV... HRTV will always be around, they are owned by Magna/CDI. But TVG doesn't have a leg to stand on in the "you need us" department. they have to make the argument to tracks that they need them.. when they really don't.