TiVo Puts Investors In Suicide Squeeze Play
The suicide squeeze is perhaps the most exciting play in baseball. It’s a dangerous and desperate call that can either yield huge victories or create crushing losses. While it’s one of the most entertaining moments for the spectators if you happen to be the coach, the team or the guy whose bookie is about to break his kneecaps, it can be a gut wrenching moment. It’s used only in the most desperate times, yet despite everything that has been recently going right for TiVo, they have still called a suicide play by agreeing to sell 8.26 million shares of common stock in another round of stock underwriting.
Over the last five years, I’ve spent way too much time stalking, obsessing loving TiVo. It was something that I had waited my whole life for and yet never knew that I needed it. From the moment that I first experienced time shifting to the anticipation that I now feel on the eve of the series 3 launch, TiVo had me at bleep blip.
At first I just started screening for news articles on the company, but the press didn’t give me enough details, so I started to tune into TiVo’s earnings calls. At the time, TiVo’s stock was in freefall mode. They couldn’t have picked a better time to sell out to the market and with the tech implosion in full force, investors could barely watch as TiVo burned through their hard earned, fast money. Unlike the softballs that TiVo gets from analysts today, these high pressure Q&A grillings would often produce juicy TiVo facts that the mainstream news simply didn’t care about. But I cared, so I kept listening and after a while I started to buy into some of the things that Mike Ramsey was saying. Eventually, I bought stock in their company and while I don’t regret my investment, it has changed my outlook on the company.
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 poision 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, NBC or Yahoo 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 poision pill, it’s existence has served to suppress the value of TiVo’s stock. In 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 canidate. 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.
In 2004, I understood why TiVo had to go to the public markets for more money. They were out of cash and if they hadn’t, they may have gone out of business, but TiVo still has $75 million in the bank, two cable agreements lined up and another $12 million in inventory waiting to be sold to home theater enthusiasts. Given Tom Roger’s assurances in their 4th quarter conference call that they they were looking at financing for an ad campaign, but that their financing “would not be equity financing of a dilutive nature”, It disappoints me to see the company think so little of their stock price that they would sell off 10% of the company to raise the money for an ad campaign. I understand TiVo’s need to have a cushion and for working capital, but after having lost so much and with so many positive developements, now seems like the wrong time to force their investors into this desperate game changing play. The extra money may pay off in the long run and TiVo may end up scoring the final winning run, but in the meantime, investors will certainly be forced to endure another gut check when they are forced to write another $60 million check to a company that has already blown through over $700 million in losses.
Posted on September 6th, 2006 by Davis
Filed under: Disclosure - I own stock in co. mentioned, TiVo
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[...] TiVo Puts Investors In A Suicide Squeeze Play: Good read especially if you invest in TiVo stock. [...]
Tivo is a perfect example of how so promising can be run so badly. I think they actually have a division that sits around all day trying to figure out to to screw up the company. The poison pill was probably instituted because someone brilliant in the company said ” we don’t know how to run this company, so maybe we should make it so someone can’t steal it from us, because we are incompetent imbeciles”.
I was in early on, and made barely anything, and went back in before last earnings. But… it was a suicide play. Sometimes I like that sort of thing. They are a half a billion in debt, and tell you flat out they may never become profitable. Duh… really.. shocking… not.
My problem with this latest move isn’t the poison pill per se. Without it, investors may have received a short term pop, but it was only a matter of time that they would have been bought out. If Cisco was willing to pay 3.5 billion for Scientific Atlanta, coming up with a billion for TiVo wouldn’t have been that hard.
The real problem is that with cash running out, TiVo was beginning to face some necessary economic pressures to make sure that they start making money instead of losing it. By selling at these low prices, it not only dillutes shareholder equity, but it also buys TiVo another 2 years of being able to lose money without being held accountable for it. Without the pill, we could see someone concentrate their position and take better control over these management decisions, but with the poison pill, TiVo management is able to make these types of bonehead moves without having to be held accountable to anyone.
[...] With $78 million in cash and another $28 million in short term investments, I somehow doubt that TiVo will ever make heavy use on this line of credit, but it’s mere existence should help to reassure nervous shareholders. I think that a lot of the doom and gloom on TiVo has been overdone, but with most of the analysts pretty dour on TiVo’s prospects, access to another $50 million in cash should help to soothe investors who have been concerned about TiVo’s near term ability to survive. Previously, Citigroup had helped TiVo to raise $65 million in a secondary stock offering and the extension of their line of credit serves as a indication of their committment to helping TiVo succeed. [...]
[...] With $78 million in cash and another $28 million in short term investments, I somehow doubt that TiVo will ever make heavy use on this line of credit, but it’s mere existence should help to reassure nervous shareholders. I think that a lot of the doom and gloom on TiVo has been overdone, but with most of the analysts pretty dour on TiVo’s prospects, access to another $50 million in cash should help to soothe investors who have been concerned about TiVo’s near term ability to survive. Previously, Citigroup had helped TiVo to raise $65 million in a secondary stock offering and the extension of their line of credit serves as a indication of their commitment to helping TiVo succeed. [...]