Could Sonic Fetch More From Rovi or Another Buyer? (SNIC, ROVI)

Sonic Solutions (NASDAQ: SNIC) is a company which has recently come up for debate in a private conversation over the world of digital rights management and distribution.  Now Sonic Solutions is being acquired in a transaction with Rovi Corporation (NASDAQ: ROVI).  While this may be a done deal, there is a chance that more money may be required.

Rovi is acquiring Sonic and the two have signed a definitive agreement for Rovi to buy the company in a stock and cash transaction with an enterprise value of $720 million.

The deal came to $14.17 per Sonic share ahead of any share price adjustments, and the companies noted that this was a 38.2% premium to Sonic’s 30 day average per share as of December 21.

The companies note: “Rovi, a provider of next generation guidance solutions including TotalGuide, discovery, metadata, advertising and networking technologies and Sonic, a provider of digital video processing, playback and distribution technologies, both leaders in the digital entertainment industry, together will bring an end-to-end solution that enables integration across the ecosystem. The acquisition of Sonic will enable Rovi to broaden its solutions to content owners, device makers, retailers and operators.” Sonic goes back to the Roxio days.

Sonic shareholders may elect to receive either $14.00 or 0.2489 shares of Rovi common stock. Cash consideration paid in the exchange offer will equal 55% of the aggregate value paid in the exchange offer and stock consideration issued in the exchange offer will equal 45%, with shares of Rovi common stock being valued at $56.24.  Sonic directors and senior management, who own approximately 11.2% of Sonic’s total equity, have agreed with Rovi to tender their shares and to vote any remaining shares that they own for the merger.

Sonic shares are up 25% at $14.01 and Rovi shares are down only about 2.6% at $56.82.  Rovi has a considerable market cap advantage here at almost $6 billion versus $683 million from Sonic.

We have already seen two law firms announce those “investigations” over possible fiduciary duty violations, and those are often precursors for class action suits.  What the case will be is that the company is worth more on a standalone basis and on a combined basis.  Sonic shares traded in a range of $15 to $20 for much of the 2003 to 2007 period.  It has virtually no debt and more than $50 million in cash assets.  Unfortunately, it has had declining revenues and that went to $104.3 million for its fiscal March-2010 year-end.  Thomson Reuters has estimates of $147.58 million for March-2011 and also has estimates of $257.47 million in March-2012.

If an alternative bidder does not arise, then the deal may not get juiced.  It will be interesting to see if a higher deal will head its way in the form of a hostile rival buyout.

JON C. OGG