Being a TiVo owner is easy, but being a TiVo stock owner that’s a different story. When I first bought TiVo, I was down 25% after one week. I guess I should have panicked, but I saw a lot of potential for the company and I knew that my exit strategy was at least a decade away, so I did what any rational compulsive gambler investor would do and I doubled down. Since then their stock has been a roller coaster, but I’ve remained a longterm believer in the future of TiVo, but it hasn’t been without some misgivings. Whether it was the schizophrenic behavior over
their rebates or the habit of
giving stock to every partner,
TiVo made a lot mistakes along the way and Wall St. hasn’t always agreed with them. One thing Wall St. really hasn’t liked was the implementation of a shareholders “rights” plan. This plan prevents any company from buying more then 15% of TiVo’s stock, before triggering a poison pill and having to spend insane amounts of money to complete a buy out of TiVo. At the time, TiVo implemented it because their market cap had been hammered and they wanted to protect themselves “long term investors” from a hostile takeover.
At the time, it would have been easy for a Comcast (
CMCSA), NBC or Yahoo (
YHOO) to come in and takeover TiVo, but with the plan in place, it bought TiVo ten years of protection to prove that their business model could work. While this was a good move for TiVo in that it ensured their independence going forward,
the problem for shareholders was that it froze TiVo’s market cap by removing the potential for a business to come in and buyout the company. Businesses no longer had a reason to invest in TiVo because without control, companies weren’t willing to trust TiVo with their money.
While I can understand the rationale for the
poison pill, it’s existence has served to suppress the value of TiVo’s stock. In a world where Youtube goes
for $1 billion blogosphere dollars and where Facebook turns down
a $750 million buyout offer, I find it hard to believe that TiVo is
only worth $680 million with $700 million in tax write offs as an acquisition candidate. While the rights plan doesn’t bother me, TiVo issuing new shares does raise the question of if TiVo is really overvalued, then what is the purpose of the shareholders rights program and if TiVo is undervalued, then why are they issuing shares at these prices to begin with? By issuing the shares, TiVo is forcing shareholders into a suicide squeeze play by forcing them the choose between selling at a poison pill depressed price or having to dilute their stock by almost 10% if they choose to stay on as longer term investors.
