Sonic Solutions to Acquire DivX

OTT video infrastructure provider, Sonic Solutions, and codec specialist, DivX, said Wednesday that they have signed a definitive merger agreement, under which Sonic will acquire DivX for around $323 million in cash and stock. The companies--which in recent months have announced two partnership agreements (see the articles published on itvt.com, December 17th and March 22nd)--are billing their merger as creating a "digital video delivery powerhouse" that will streamline OTT distribution of Hollywood movies. Under the terms of the agreement, which has been approved by both companies' boards, Sonic will acquire all outstanding shares of DivX and merge the latter company's operations into its own. DivX stockholders will receive a combination of cash and stock equal to $3.75 in cash and 0.514 shares of Sonic common stock for each share of DivX they hold, the companies say. The acquisition is expected to close in September, pending regulatory approval and approval by both companies' shareholders.

According to Sonic, the acquisition of DivX will further its goal of delivering technology that makes it easy and convenient for retailers, online services, studios and CE and mobile device manufacturers to distribute premium digital video content over the Internet (note: among other things, the company's recently renamed RoxioNow platform is powering Best Buy's new broadband video service--see the article published on itvt.com, May 18th). It says that DivX will enable it to deepen and broaden the technology it offers for Internet-based video delivery and expand its relationships with leading retailers and CE manufacturers. According to the company, DivX's technology--which includes encoders for formatting video, decoders for playback and DRM for content protection--resides on over 300 million CE devices worldwide, including over 8,500 models of digital televisions and DVD and Blu-ray Disc players, as well as over 80 different mobile handsets. DivX also claims that its Web properties receive over 12 million unique visitors each month.

Sonic enumerates the "key benefits" of the acquisition as follows:

• The acquisition is expected to be accretive to Sonic's shareholders, potentially doubling fiscal 2012 earnings per share on a non-GAAP basis.
• DivX's technologies are expected to give Sonic a more extensive solution for Internet video delivery, including the dominant tools for content preparation in the cloud, video playback and Hollywood-approved DRM.
• DivX is expected to provide leverage to Sonic's strategy of CE deployment, because the DivX player and DRM are deployed in products from over 150 different CE manufacturers worldwide on millions of devices.
• The DivX brand is perceived worldwide as representing "compatibility, quality and ease of use."

According to the companies, Sonic's current management team (including Dave Habiger, Clay Leighton, Paul Norris, Mark Ely and Matt DiMaria) will lead the merged entity, "augmented" by key managers and executives from DivX. DivX CEO, Kevin Hell, the company's CFO and EVP of operations, Dan Halvorson, and its general counsel and EVP of business and legal affairs, David Richter, will "be cooperating closely with the Sonic team to close the transaction and integrate the companies, but will not continue in the combined company in their current positions," the companies say. Once the acquisition is complete, DivX shareholders will own approximately 35% of the merged entity's capital stock, according to the companies, and two members of DivX's board of directors will be added to Sonic's board. "Our studio, storefront, and consumer electronics partners agree: they want a clear and efficient path to deliver premium content to their customers," Sonic president and CEO, Dave Habiger, said in a prepared statement. "The combination of Sonic and DivX promises to be the foremost provider of platforms, tools, and technologies for the efficient delivery of premium video entertainment to virtually any type of consumer electronics device. We expect DivX's deep technology and broad deployment in the CE and mobile areas to give us significant leverage as we expand and enhance our RoxioNow premium entertainment platform." Added DivX CEO, Hell: "Sonic and DivX are both market leaders in digital media and share similar visions about a better media future for consumers. We also share similar cultures and both recognize the tremendous market opportunity that lies ahead for Internet video services. By combining our products, technologies, partnerships, and talented employees, we immediately create a complete end-to-end delivery platform for digital media, with expanded reach and capacity, at a perfect time to capitalize on the market's rapid development. With the acquisition of DivX, Sonic should be extremely well positioned to serve existing customers, attract new partners, and increase our market presence and potential."