OpenTV to acquire Spyglass for $2.5 billion

Investors reacted to the $2.5 billion merger by sending OpenTV shares down $39.97, to $129.63, at the close of regular trading today. Spyglass shares, on the other hand, surged about 18 percent, to $82.38.

Spyglass helped fuel the growth of the Web in 1994, when it developed and began distributing its commercial Web browser, Spyglass Mosaic. It now offers other technologies, including one for connecting wireless devices to the Internet.

Spyglass wireless Internet technology translates and delivers traditional Internet content for wireless devices like Internet-enabled cell phones. Spyglass, along with industry players such as Phone.com, are angling to position themselves for a chunk of the potentially huge wireless market.

"Our solution can sit at a content aggregator, content provider or traditional wireless carrier," said Doug Colbeth, CEO of Spyglass, in a conference call with investors and financial analysts this morning. "We service content created for the current Internet infrastructure, which is mostly PC-based."

OpenTV, a powerhouse in providing software for television set-top boxes, counts America Online, Sun Microsystems and Time Warner as its investors, among others.

Under the deal, Mountain View, Calif.-based OpenTV, which provides software for interactive-TV services to the likes of Rupert Murdoch's BskyB satellite service, will gain access to Spyglass technology that permits cable and satellite set-top boxes to view Internet content.

In addition, OpenTV will acquire Spyglass' technology for connecting wireless devices to the Internet, an area of increasing investor interest.

Under the terms of the deal, OpenTV said it will acquire all of Naperville, Ill.-based Spyglass' outstanding stock in a tax-free, stock-for-stock transaction. Spyglass stockholders will receive about 0.7236 of OpenTV Series A Ordinary Shares in exchange for each share of Spyglass common stock. Based on OpenTV's closing stock price on Friday, each Spyglass share is valued at $122.28, about 75 percent more than Spyglass' closing price last Friday.

"It stunned me they paid $2.5 billion for (Spyglass). That's unbelievable for a stock that was trading at $10 not long ago," said Mitchell Kertzman, CEO of Liberate Technologies, a competitor to OpenTV. "My view is that this is a defensive move for OpenTV.It's going to be a very challenging integration effort," because wireless device technology hasn't been a key area of interest to OpenTV to date.

OpenTV's interest in wireless technology isn't immediately apparent, but company executives say there is a time coming when there will be many more devices that need to share information with the set-top receivers that the company currently focuses on.

"There is an opportunity existing now that when we've created an interactive TV platform that's compelling, (network operators will offer) that content played across other media," said OpenTV chief executive Jan Steenkamp. For instance, broadcasters who have digitized their content could use Spyglass technology for pushing video first seen on TV into a format suitable for display on a cell phone or handheld device.

The deal provides OpenTV access to Spyglass' impressive customer base, including General Instrument. Spyglass has a three-year, $20 million joint venture with General Instrument to develop technologies for interactive television.

OpenTV also counts GI as an investor, but has yet to parlay this connection into design wins.

OpenTV has yet to score a deal to roll out its software with cable operators in the United States. Many cable operators have already aligned themselves with Larry Ellison's Liberate Technologies, Scientific-Atlanta's PowerTV or Wink Communications, whose investors include Microsoft.

OpenTV had hoped that the rollout of interactive services on Echostar's satellite service would spur cable operators to join its ranks, but deals with cable companies still have not been forthcoming.

OpenTV?s Steenkamp will continue as president and CEO of OpenTV after the close of the deal. Doug Colbeth, Spyglass chairman and CEO, will become executive vice president of corporate development of a newly formed wireless communications unit.

OpenTV was formed in 1994 as an alliance between Thomson Multimedia--makers of RCA-brand products--and Sun Microsystems in an effort to produce software for digital television. In 1996, the alliance was restructured into an independent operating company named Thomson Sun Interactive.

In 1997, the company changed its name to OpenTV. Thomson later divested from the venture after having received an investment from Microsoft in 1998.