Discovery wants Kudelski out of OpenTV

Rose Major

Merchant banking firm Discovery Group, the largest independent shareholder of Open TV, has hit back at Kudelski Group’s assessment of the interactive TV group, proposing that Open TV repurchase Kudelski’s Group 32% stake.

Discovery Group has sent a letter to Open TV’s Board of Directors with the proposal that the repurchase take place for US$1.35 a share – the amount Kudelski was earlier trying to take over Open TV for.

In Discovery’s letter to the OpenTV board it indicated that Kudelski’s low offer price and its derogatory assessment of OpenTV’s prospects lead Discovery to believe that “Kudelski Group and Andre Kudelski do not see the inherent opportunity and value in OpenTV’s business and lack confidence in OpenTV’s management team and employees.” Discovery went on to call this “a terrible state of affairs given that Kudelski Group is OpenTV’s controlling shareholder, through its special voting rights, and Andre Kudelski is the Chairman of OpenTV’s Board of Directors.”

Discovery claims that there have been recent disclosures by Kudelski suggesting its primary ambition is to “maintain unfettered access to excessive idle cash at OpenTV” amounting to US$114.2 million. That, claims Discovery, would enable Kudelski to pursue large-scale acquisitions and capital spending projects for the benefit of Kudelski’s global enterprise.

But Discovery neither offers any evidence for these claims, nor points out that in its own statement of June 4, Kudelski openly admitted it wanted to see OpenTV grow its business “mainly organically but also potentially through acquisitions”, particularly in next-generation solutions. That, said Kudelski, would require a substantial portion of OpenTV’s cash resources.

Discovery’s statement continues: “Because Discovery believes these acquisitions would not serve the best interests of OpenTV’s U.S. shareholders, which hold a majority economic stake of 68%, Discovery suggests that a better alternative would be for OpenTV to use about half its available cash to buy-out Kudelski for approximately $60 million. This transaction presumably would provide Kudelski with the funds it needs for its own expansion while leaving OpenTV with more than enough residual liquidity to safely operate its business and to fund its promising growth opportunities.”

Dan Donoghue, managing partner at Discovery Group said: “Our proposal would alleviate the multiple conflicts of interest that have haunted OpenTV since Kudelski became involved with the company,” adding that Kudelski had appointed to the Biard several directors that “lack adequate independence”.