GEMSTAR WEIGHS MANAGEMENT CHANGE, EARNINGS DELAYED
Battle for control of Gemstar TV Guide International between major shareholder News Corp. and CEO Henry Yuen appears to be nearing climax as joint proposal is submitted to board to restructure management. Gemstar didn’t provide details of restructuring, which was announced late Wed. night, and company officials weren’t available for comment. But people familiar with talks told Wall St. Journal (WSJ) that Yuen, who founded Gemstar and guided it to merger with TV Guide 2 years ago, would become nonexecutive chairman.
Sign up for a free preview to unlock the rest of this article
If your job depends on informed compliance, you need International Trade Today. Delivered every business day and available any time online, only International Trade Today helps you stay current on the increasingly complex international trade regulatory environment.
News Corp., which has 42% stake in Gemstar by virtue of TV Guide merger, has pushed for management shakeup, and Wed. reported $1.9 billion write-down on carrying value of its investment in Gemstar for 4th quarter ended June 30. Write-down was largely responsible for News Corp.’s reporting $1.7 billion 4th-quarter loss vs. $265 million loss year earlier as revenue increased 11% to $3.8 billion from $3.4 billion. News Corp. began to put management stamp on Gemstar earlier this year when its former executive Jeffrey Shell was named COO, following departure of Peter Boylan. Management is being further restructured to “settle disputes among the parties,” Gemstar said. News of changes boosted Gemstar stock 7.7% in midday trading Thurs. to $3.60.
Management changes at Gemstar also are said to include CFO Elsie Leung, who will shift to nonexecutive position. Yuen has defended Leung against criticism from investors following series of financial missteps, most recent of which came Wed. night when Gemstar said it was unable to file or certify its fiscal 2nd- quarter results with SEC. Gemstar missed SEC-mandated deadline after audit committee raised questions about way in which company allocated revenue between its interactive division, which includes interactive program guide (IPG), and media and services that involve TV Guide. Gemstar frequently packaged advertising sold on IPG with that sold on TV Guide and issue was whether those arrangements were accounted for properly, source told WSJ. Audit firm KPMG “informed the company that it does not believe that it has been provided information sufficient to support a change in the accounting treatment,” Gemstar said.
Gemstar also will restate fiscal 2001 results to reflect reversal of $20 million in revenue. It had listed $20 million in fiscal 2001 as IPG ad revenue from barter agreement with Fantasy Sports in which latter received space on guide in exchange for intellectual property. Gemstar also said collection of licensee revenue from Scientific-Atlanta (S-A) was “no longer reasonablely assured” and would be put aside as reserve. Gemstar had accrued $113.5 million in license fees from S-A since agreement between companies expired in July 1999. S-A was Gemstar licensee 1997- 1999. However, companies exchanged lawsuits in 1998 and S-A began selling set-top box with own guide following year. Companies since have been involved in patent infringement suit. Gemstar said it would expense legal costs of defending its patents in court cases. Gemstar said in recent SEC filing that it had more than $40 million in capitalized patent legal costs. Large portion of legal expenses were related to ITC case in which Gemstar sought to block import of set-top boxes marketed by EchoStar, Pioneer and S-A that it alleged infringed on 3 of its IPG patents. ITC administrative judge ruled in June that companies hadn’t infringed on Gemstar’s patents.