One analyst estimated that the settlement of TiVo Inc. (NASDAQ:TIVO) patent claims might amount to $939 million (because 68.3% of all estimates are pulled out of thin air). This deal, struck just weeks before the scheduled trial, would leave the door open for an even larger settlement with Cisco Systems, Inc. (NASDAQ:CSCO) before that trial starts in 2014. The Cisco Systems, Inc. (NASDAQ:CSCO) infringement was said to be worth “billions of dollars” to TiVo Inc. (NASDAQ:TIVO), according to pre-trial court filings.
And then the other shoe dropped. Trading of TiVo Inc. (NASDAQ:TIVO) shares was halted in the pre-market hours, as the company presented the full news story in an SEC filing and press release. As it turns out, Cisco Systems, Inc. (NASDAQ:CSCO) also settled on Thursday and TiVo Inc. (NASDAQ:TIVO) has no more major court battles on the table. The lump-sum payment adds up to just $490 million, covering both the Cisco Systems, Inc. (NASDAQ:CSCO) suit and the Motorola/Google Inc. (NASDAQ:GOOG)/ARRIS GROUP DL-,01 (NASDAQ:ARRS)/Time Warner Cable Inc (NYSE:TWC) action. These are not the dollars investors were looking for.
When trading opened again, still in pre-market hours, TiVo Inc. (NASDAQ:TIVO) shares plunged as much as 21%. The trend held after this morning’s opening bell. Shares were down 18.2% two minutes after the market open, with more than twice TiVo’s average daily volume already having changed hands.
It’s not the enormous payday some investors may have hoped for. The one-time cash payment will be recognized in bits and pieces over the next five years in the Motorola-based case, and 10 years for the Cisco Systems, Inc. (NASDAQ:CSCO) portion. Don’t expect any additional royalty or license fee streams on top of this lump sum. This is why TiVo shares are falling through the basement floor today.
Being a TiVo shareholder myself, I don’t see any reason to sell. In fact, it’s a wonderful outcome.
The twin settlement works out to $3.87 per TiVo share. Analyst firm MKM Partners recently said that share prices in early May only priced in about $3 of potential patent-case value. MKM wanted at least $1 billion and maybe as much as $2.3 billion out of Motorola and Cisco Systems, Inc. (NASDAQ:CSCO). On a massive deal (or judgment) like that, I proclaimed my intention to sell immediately to lock in my incredible and unsustainable profits.