DivX Signs Tentative Settlement of Shareholder Suit, Nears Sale to Sonic Solutions
DivX reached a tentative settlement of a shareholder suit, clearing one hurdle to its proposed $323 million sale to Sonic Solutions, Sonic said Thursday in documents filed with the SEC. The suit, filed by the Shareholder Foundation in California Superior Court, San Diego, accused DivX’s board of breaching its fiduciary duty in trying to sell the company at an “unfair price.” The shareholder group filed a motion Aug. 20 seeking a preliminary injunction blocking the sale and a hearing was scheduled for Sept. 3, Sonic said. Terms of the proposed settlement weren’t released. There was no comment from DivX or Shareholder Foundation officials.
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Sonic initially proposed in March buying DivX for $7.50 per share, an amount that rose to $9.83 when the DivX board approved the deal in June. A second shareholder suit, filed in the Chancery Court of Delaware in Wilmington is pending. Sonic shareholders will vote on the proposed purchase at the company’s Oct. 7 annual meeting.
The ties between the companies started with Sonic licensing DivX software in 2005 and grew with DivX’s acquisition of MainConcept two years later. The companies reached agreement in December for Sonic’s RoxioNow video download service to offer movies in the DivX format and for playback on DivX-certified devices. The relationship turned to a possible acquisition in January following a talks between Sonic Non-Executive Chairman Robert Doris and DivX CEO Kevin Hell, Sonic said.
In addition to the per share purchase price, several other terms of the proposed sale changed, including increasing DivX’s pro forma ownership of the combined company to 36.3 percent from 33.5 percent. DivX also would be required to pay a 2-4 percent break-up fee or $8.35 million if the sale collapsed, Sonic said. Sonic is expected to incur $3.5 million in costs tied to the transaction, while DivX spends about $4.9 million, Sonic said.
In providing the basis for the acquisition, Sonic said including the DivX format in the RoxioNow platform would drive DivX’s licensing revenue. The sale also would give DivX-encoded content distribution through RoxioNow-powered retail platforms including Blockbuster-on-Demand and Best Buy’s CinemaNow. DivX’s MainConcept codecs also would be included in Sonic’s professional products, Sonic said. The combination also would increase Sonic’s international sales, which were $22.9 million in the fiscal year ended March 31. DivX posted international revenue of $57 million during the same period, Sonic said.
The companies also forecast their respective revenue for fiscal years through 2014. DivX’s revenue was projected to rise from $83 million in fiscal 2010 to $169.3 million in 2014. The company’s DivX TV business, which is expected to launch in LG Electronics’ products this fall, was projected to generate $1.6 million revenue in fiscal 2011, increasing to $50.8 million in 2014. During the same period, Sonic’s revenue is forecast to jump to $279 million in 2014 from $109.5 million in fiscal 2011. The increase will be driven by Sonic’s RoxioNow business, which will boost sales to $179.2 million from $22.6 million in 2011, Sonic said.
The management of the combined company hasn’t been set. But Hell could get up to $5.3 million in “termination” benefits if he doesn’t remain with Sonic after the sale. Chief Financial Officer Daniel Halvorson would get $3.9 million if he doesn’t stay with the company. Under a change-in-control agreement, DivX executives are entitled to severance including 24 months of base salary and a bonus equal to 200 percent of the annual “target” bonus.