Kudelski Group has inked a deal to acquire the voting control of OpenTV Corp., and the result should create an integrated, one-stop shop for conditional access, middleware, TV applications and advanced advertising technologies.
Under financial terms of the deal, Kudelski will acquire 6,533,951 Class A ordinary shares and 30,206,154 Class B ordinary shares of OpenTV from John Malone's Liberty Media Corp. The aggregate purchase price will be roughly $132.2 million. It will give Kudelski a 26.7 percent economic interest and a 74.7 percent voting interest of OpenTV's ordinary shares outstanding as of Sept. 30, 2006. The companies expect to close the deal by Q1 2007.
Kudelski is paying $3.60 per share, a 26 percent premium to OpenTV's stock price on Oct. 17. In early trading Thursday, OpenTV shares were up 2 cents to $2.87 each.
During a call with reporters and analysts Thursday morning, officials for OpenTV and Kudelski talked up the technical and business synergy the agreement will generate.
The combination will open up new opportunities for each company, but allow each company to continue to operate its own businesses, they said.
"This transaction is about aligned independence," said OpenTV Chairman & CEO Jim Chiddix.
The agreement, he added, also signals OpenTV's transition to a more strategic technology player in the world of digital television.
As for what each company brings to the table, OpenTV's primary business is set-top middleware, representing about 80 percent of the company's revenue. OpenTV's middleware is in more than 73 million set-tops across the globe with 36 pay TV operators. It has also issued more than 400 patents, with more than 700 still pending. OpenTV has also been growing a set-top applications business, but sees its advanced advertising operations as having the most significant long-term potential.
The Kudelski Group, meanwhile, provides content protection and digital rights management technologies. One of its primary divisions is Nagravision, a leading supplier of conditional access (CA) systems. The company said its CA solutions are active in more than 66 million smart cards and digital devices for a range of satellite, terrestrial, cable, IPTV and mobile TV customers. Kudelski's main CA competition comes from the likes of NDS Group and Irdeto, as well as the U.S. cable CA duopoly of Motorola Inc. and Scientific Atlanta.
OpenTV and Kudelski have also been technological partners in several instances. In the U.S., for example, EchoStar Communications uses Nagravision's CA system and set-top middleware and applications from OpenTV.
In addition to cross-selling products, OpenTV and Kudelski will now be able to offer a "best in class suite" for content protection, on-demand services, interactive apps and advertising, Chiddix said.
One key question with the deal will be the future role of Chiddix, who has been key to OpenTV's U.S. cable strategy. During Chiddix's tenure at the company, Time Warner Cable announced in June that it would use OpenTV's middleware to ensure that the operator's new in-house digital navigator and associated apps run in systems already outfitted with Motorola digital pre-OCAP set-tops and headends.
Upon closing of the deal, Kudelski expects to appoint Alan Guggenheim, currently the CEO of NagraStar (the J.V. between Kudelski and EchoStar), to CEO of OpenTV. Chiddix, meanwhile, will assume the position of vice chairman of OpenTV.
Chiddix's future role with OpenTV is in the "exploratory phase," with more detail on that to be shared in the coming weeks, Kudelski Group Chairman & CEO André Kudelski said during Thursday morning's conference call.
"I'm very happy with what we've been able to accomplish over the last two-and-a-half years," Chiddix said. "There is much more for the company to do."