Virgin Media (VMED) Takeover is Either a 'Push' or a 'Boon' for TiVo (TIVO) - Analyst

February 5, 2013 11:54 AM EST
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TiVo (NASDAQ: TIVO) shareholders are cautious early Tuesday following news Virgin Media Inc. (NASDAQ: VMED) is in discussions with Liberty Global, Inc. (NASDAQ: LBTYA) about a possible transaction. Virgin Media is an important partner of TiVo, so a deal could bring about change to the contract. However, Janney Capital analyst Tony Wible doesn't see major changes and said TiVo has been a sucess for Virgin Media and a deal could actually be a positive.

On the contractual relationship, Wible states: "TIVO would still be paid for many years under a new parent company as there are no change of control provisions embedded in the contract. This provides a long horizon for TIVO to continue to prove it is a positive ROI for MSOs."

Wible also said TiVo "has been an important element of VMED’s return to growth, which is well documented in public comments." TIVO has helped improve sub acquisition, churn, ARPU, and market share, he notes. "While there are no guarantees, it would seem unlikely that a new owners would want to eliminate a growth catalyst for the MSO."

TiVo also has a positive relationship with Liberty Global CEO John Malone, the analyst also notes. "We believe Malone was instrumental in helping TIVO secure a deal with DTV in 2008," he said. "We note that DTV was not supportive prior to Malone’s stake and was not supportive after Malone spun off his DTV stake to Liberty shareholders."

On a positive note, with 18.2 million video subs in Europe, TiVo has an opportunity to prove that it could help Liberty improve its core metrics as it has with VMED, the analyst notes

Wible sees the a VMED merger as a "push" in the worst case scenario and a "boon" in the best case. Over the near term, the highly likely settlement with GOOG is the a much larger catalyst. He sees a potential settlement before the May trial.

The firm maintained a Buy rating and price target of $15 on TiVo. They would use any weakness from VMED uncertainty as a good buying opportunity.

For an analyst ratings summary and ratings history on TiVo click here. For more ratings news on TiVo click here.

Shares of TiVo closed at $13.08 yesterday.

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