Sonic Solutions to Merge With DivX as Battle Looms for Internet TV Dominance

6/2/10Follow @bvbigelow

Media technology company Sonic Solutions (NASDAQ:SNIC) of Novato, CA, is acquiring DivX (NASDAQ: DIVX), the San Diego digital media and video codec developer, in a deal valued at roughly $323 million.

The buyout, which was announced by both companies today, will help Sonic accelerate its development of Web-based infrastructure for streaming online video movies and TV programs over the Internet to consumers’ computers and mobile devices. Sonic, which has developed an extensive line of Roxio media software for consumers, also has developed technology for online movie downloads through CinemaNow in a deal with Best Buy, the consumer electronics retailer. Sonic said last week it plans to begin powering Blockbuster’s On Demand movie service across several devices, including DVRs and HDTVs from TiVo and Blu-ray players from Samsung.

DivX, which takes its name from the DivX digital media codec standard, embarked on a strategy under CEO Kevin Hell to broadly license its video compression technology to a host of consumer electronics devices and manufacturers. About 70 percent of DivX’s revenue last year was generated from licensing deals with original equipment manufacturers, original design manufacturers, and integrated circuit manufacturers. Its rivals include Apple, Adobe Systems, Google, Microsoft, and RealNetworks.

Samsung and Sony are two of the company’s biggest customers, and DivX technology is certified for thousands of different models of HD televisions, Blu-ray disc players, and IPTV set top boxes. As I explained in September, DivX also began arranging deals with Hollywood studios that enables consumers to watch online movies from FilmFresh.com on DivX-certified devices.

Under the agreement announced today, Sonic would acquire all outstanding shares of DivX and combine the two operations. DivX stockholders would receive a combination of cash and stock that values DivX at about $9.83 per share, a 41 percent premium over yesterday’s close of $6.95 a share. After the deal is finalized, which is expected to occur in September, DivX shareholders will own about 35 percent of the combined company.

Sonic notes that its management team, including CEO Dave Habiger, COO Clay Leighton, CFO Paul Norris, and strategist Mark Ely, will lead the company after the merger. DivX CEO Hell, CFO Dan Halvorson, and David Richter, executive vice president and general counsel, plan to leave following the merger, according to the announcement. DivX has 350 employees, mostly in San Diego, according to The San Diego Union-Tribune, and Sonic has about 600. The newspaper says Sonic does not plan to close the San Diego office.

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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