(By Balachander) Brean Capital said fears of TiVo Inc. (NASDAQ: TIVO) displacement in a Liberty Global Inc. (NASDAQ: LBTYA) acquisition of Virgin Media Inc. (NASDAQ: VMED) are likely misplaced.
Liberty agreed to acquire Virgin Media, a communications services company, for roughly $23.3 billion in cash and stock.
The brokerage said shares of TIVO were under pressure yesterday due to fears that TiVo could be displaced by Liberty's acquisition of Virgin Media. This could be compounded today by confirmation of that deal, and Virgin reporting a slowdown in TiVo net adds with its 4Q12 results last night.
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Brean Capital thinks TiVo's displacement from Virgin is unlikely for a number of reasons. TiVo has a mutually exclusive long-term deal with Virgin in the U.K., not subject to change of control provisions. TiVo has been well received by Virgin customers, achieving over 35%
penetration in six quarters, accompanied by market share gains for Virgin, the brokerage said.
The brokerage said Liberty does not have an alternative solution, unhappy as it is with its Cisco (CSCO) sourced "Horizon" home gateway, and actively seeking an alternative under the codename "Dawn". This, Brean Capital wrote, could actually turn Liberty's acquisition of Virgin into an opportunity for TiVo.
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Brean Capital believes that TiVo's strong relationship with Virgin may actually provide TiVo with a means for enhancing its relationship with Liberty should TiVo be able to expand its business model once it gets past current litigations which we believe are holding TiVo's current model in place.
"As a result, we would be more aggressive ahead of a likely Motorola settlement if the stock is under further pressure," Brean Capital wrote.
Brean Capital has a "Buy" rating and price target of $15 on shares of Tivo.
TIVO shares rose 1.83 percent to trade at $13.05 on Wednesday.