It's not often that an activist hedge fund pressures a company
not to sell, but
Gemstar TV Guide International
(NDAQ:GMST) appears to be the exception to the rule! Citadel Equity
Fund, the company's largest shareholder, noted in a letter to the board
that they fully support the company's board and management but caution
that their recent decision to explore strategic alternatives may be in
error given the company's unique market position and strong prospects
for the future.
Citadel believes that Gemstar is uniquely
positioned at the nexus of exciting changes taking place in video
entertainment consumption, including the transition from analog to
digital distribution, new platform developments (IPTV, broadband and
mobile), and significant opportunity to monetize hundreds of billions
of impressions garnered each year on IPG (interactive program guide)
through both advertising (display and search) and transaction based
services.
Despite the company's strong position in this arena,
the hedge fund insists that the company's stock fails to reflect (1)
the current improved state of Gemstar's operations or (2) the
opportunity for independent value creation over the next several years
as an increasing number of platforms take advantage of Gemstar's unique
intellectual property. While the hedge fund commends the board's
decision to explore options, it does not believe any bids will be made
that reflect the billions of dollars of incremental equity value that
could be realized over the next few years.
Citadel is one of the
world's largest hedge funds with its flagship funds returning nearly 30
percent per year. It was also the first hedge fund to go public to
raise funds and allow owners to cash in on their stake. Given their
strong equity performance and extreme confidence in management (so much
so that they would forgo an immediate premium), we have good reason to
add GMST to our stocks
worth watching!
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