Sonic Solutions Settles Shareholder Suits, Clearing Way for Sale

Sonic Solutions settled a series of shareholders lawsuits, potentially clearing the way for its $720 million sale to Rovi (CED Dec 27 p1), the company said in an SEC filing. Five suits were filed in Marin County Superior Court in California starting in early January, alleging Sonic’s board had breached its fiduciary duties by failing to maximize shareholder value and by approving the merger through an unfair process. The settlement terms weren’t disclosed.

Shareholder Joann Thompson sought a temporary restraining order Friday to bar Rovi from accepting tendered shares. The request contends that the offer and merger violated the California Corporation Code. The motion was denied, Sonic said. The company’s sale to Rovi, cleared by the FTC Jan. 24, is expected to close this month.

As Sonic prepared for the sale, the company said, it acquired German video-on-demand software developer Nowtilus Onlinevertriebsgesellschaft for $7.8 million. Nowtilus, founded in 2007, provides a VoD platform for a variety of services in Germany, including Warner Bros. Entertainment Germany and MediaMarkt.

Meanwhile, Sonic swung to a $4.2 million Q3 profit from a $344,000 loss a year earlier, as revenue rose to $26.42 million from $26.39 million driven partly by the acquisition of DivX last fall, which added $2.1 million in sales. Gross profit slipped to $14.9 million from $18.3 million. R&D expenses rose to $13.9 million from $5.7 million. Sonic incurred $2.4 million in acquisition-related costs, including $1.8 million for DivX. It also incurred a $500,000 bad debt expense tied to the bankruptcy of an unidentified customer.

Sonic’s Roxio consumer products operating income dropped to $5.3 million from $7 million a year earlier as revenue declined to $19.5 million from $22.2 million on lower sales of Creator and CinePlayer software. The operating loss for Sonic’s premium business, which includes the RoxioNow video download platform, grew to $4.3 million from $2.9 million a year earlier, despite a rise in sales to $4.6 million from $4 million. The premium division’s cost of revenue rose to $3.21 million from $2.11 million.

DivX recorded a $12.4 million operating loss on sales of $2.1 million, the company said. DivX’s MainConcepts group -- which develops H.264 codec technologies and is part of the premium business -- generated $800,000 in revenue. Sonic’s U.S. sales fell to $18.9 million from $20.4 million a year earlier. Sales to software distributor Navarre accounted for 20 percent of total revenue, down from 21 percent a year earlier, and those to Digital River declined to 19 percent from 23 percent. Dell and Hewlett-Packard, which package Roxio software with PCs, were 9 percent and 6 percent of total revenue respectively, down from 13 percent and 12 percent a year earlier, Sonic said.