Shares of TiVo (TIVO) are set to jump nearly 50% today after winning a big ruling in its longstanding patent with DISH (DISH). Basically, a judge ruled that despite the satellite operator’s attempt to engineer around a TiVo patent, the company was still in violation, and had to shut off DVR capabilities immediately. Considering that the DVR is about as crucial to watching TV these days as a remote control, the company will have to settle with TiVo for what will be over $100 million.
For its part, DISH says it will appeal for a stay of the ruling, but it doesn’t look good, and TiVO shareholders are already counting their money.
Goldman Sachs analyst Ingrid Chung runs the maths on the likely settlement:
While we believe that DISH will appeal and could get a temporary stay, we believe that, in the end, DISH will choose to pay TiVo licensing fees rather than disable roughly 4 mn infringing DVR boxes. In a worst case scenario, we estimate the impact of annual licensing fees and these damages at roughly $3 per share: (5.5 mn boxes x $3 fee per sub x 12 months capitalised at 10X and reduced by a 40% tax rate plus $150 mn in total damages) divided by 450 mn shares. We believe that it probably is more likely that DISH will pay a lower licensing fee than $3 per sub per month, but we expect TiVo, in a stronger position, to push for a favourable fee, setting a precedent for other forthcoming distribution deals.
So in addition to pushing for more distribution deals and setting a nice precedent, what else should TiVo do with the windfall?
The company could pay long suffering shareholders a one-time payout to thank them for their patience, but between tax issues and the belief that they’re likely to need more organic investment, this is probably unlikely.
The money isn’t enough, either, to make any game-altering acquisitions.
Perhaps their best play is to use it to lock up more content deals, establishing more breathing between them and other players vying for a place on the TV stand.
Any TiVo shareholders with ideas on what you’d like to see them do with the money?