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Why TiVo Inc. Shares Jumped Today

By Jeremy Bowman – Mar 24, 2016 at 3:00PM

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Shares of the DVR-maker soared on buyout rumors. Here's what you need to know:

What: Shares of TiVo (TIVO) were soaring Thursday on rumors that the entertainment company would merge with Rovi Corporation (NASDAQ: ROVI). As of 1:33 p.m. EST, TiVo stock was up 21.3%.

So what: The New York Times reported Thursday morning that the DVR-maker was in "advanced negotiations" to be sold to Rovi, one of the largest patent owners of digital entertainment devices. TiVo shareholders would receive a combination of cash and stock, though the price has not yet been determined. A merger would give TiVo shareholders about 30% ownership of a combined company.

The two companies are considered competitors, meaning a deal could make the combined company more profitable. However, Rovi shares did not react favorably to the news, falling 4% in afternoon trading.

Activist Glenn Welling of Engaged Capital pushed for the deal after acquiring two seats on Rovi's board last year, and with TiVo searching for a new CEO, the timing was opportune.

Now what: No dollar figure has been assigned to the deal yet, and The New York Times' sources said the merger could still fall apart. However, a buyout would clearly be in TiVo's interest. Before the announcement, the stock had fallen nearly 50% since a peak in August, and the company has struggled to deliver bottom-line growth as the television landscape shifts.

With merger talks now in the open, the stock could continue moving higher on anticipation for a deal.

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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