Discovery Group Urges OpenTV to Repurchase Kudelski's Stake in the Company

--Says "Multiple Conflicts of Interest...Have Haunted OpenTV" Since Kudelski Became Involved in it

As [itvt] reported last week (see article posted on itvt.com, June 5th), Kudelski last Thursday issued a stinging response to the decision by a special committee of OpenTV's board of directors to reject its unsolicited offer to acquire, at $1.35 each, all outstanding shares of OpenTV Class A ordinary stock that it does not already own. Now Discovery Group, OpenTV's largest independent shareholder, which was singled out for criticism in Kudelski's response as having provided an analysis of its offer that was "fundamentally flawed and contain[ed] numerous inaccurate assumptions and misleading analysis," says that it has written to OpenTV's board, proposing that OpenTV use its large cash reserves to repurchase Kudelski's stake in it for $1.35 per share.

According to Discovery Group--which notes in a press release it issued Tuesday that Kudelski's response "accused the Special Committee of relying on 'an overly optimistic and unrealistic outlook on both OpenTV's future business prospects and the business as a whole'"--its letter to the OpenTV board states that Kudelski's low offer price and its "derogatory assessment" of OpenTV's prospects lead it 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." This, the letter continues, is "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 Group then goes on to explain in its press release what it believes to be the real motivation behind Kudelski's buyout offer: "Discovery's letter points to recent disclosures by Kudelski that suggest that its primary ambition is to maintain unfettered access to excessive idle cash at OpenTV, amounting to $114.2 million at March 31, 2009, in order to pursue large-scale acquisitions and capital spending projects for the benefit of Kudelski's global enterprise." Therefore, the press release continues, "because Discovery believes these acquisitions would not serve the best interests of OpenTV's US 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."

According to Discovery Group, its proposal would "alleviate the multiple conflicts of interest that have haunted OpenTV since Kudelski became involved with the company." Among those conflicts of interest, Discovery Group says, is the fact that "several directors have been added to the [OpenTV] board by Kudelski that Discovery believes lack adequate independence." Discovery's press release announcing its proposal concludes by stating that the buyout it is suggesting "would allow OpenTV to restructure its Board and free management to set the strategic direction of the company on a course that maximizes the risk-reward opportunity for its US public shareholders."

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North America