Google's (GOOG) Best Way Out of TiVo (TIVO) Litigation May Be to Buy the Whole Company - Analyst

December 6, 2012 2:10 PM EST
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Price: $11.34 --0%

Rating Summary:
    12 Buy, 15 Hold, 0 Sell

Rating Trend: Up Up

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    Up: 30 | Down: 30 | New: 23
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Following chatter of Apple, Inc.(Nasdaq: AAPL) making a possible pass at Netflix (Nasdaq: NFLX) today, Janney is out with speculation that Google, Inc.(Nasdaq: GOOG) might have eyes for TiVo (Nasdaq: TIVO).

Or, it should, anyway.

Janney analyst Tony Wible first notes TiVo's litigation potential. TiVo has won about 81 percent of claims against Google and its Motorola Mobility unit. Only 5 percent were lost and 14 percent resulted in a split decision. Wible comments: "These interpretations will make it much more difficult for Motorola to prevail in court as the prior precedent and the broader interpretations are harder to circumvent."

Wible thinks Google/Motorola will feel pressure to settle to avert paying out damages and numerous legal fees. He also thinks that Google will be unable to unload the Motorola Home business without resolving the legal overhang.

Overall, Wible sees damages of $720 million based on 20 cents per month on 20 million boxes over a six-year time frame. That amounts to about 50 percent of TiVo's current maket cap.

Wible is then proposing that Google buy TiVo, being the only cost-efficient way to part with the Motorola Home unit and resolve litigation. He comments, "Buying it would give them control of the patents while bundling TIVO with Motorola would have a significant edge over competitor CSCO, who is also in litigation with TIVO." A premium of 50 percent might be needed to grab TiVo investors' attention.

Given that trial is set for next May, Wible sees more gains in the stock ahead of time as settlement negotiations commence. He rates TiVo at Buy with a price target of $15 (which was moved up from $14.50 on November 29th).

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