Citadel’s Curiously Passive Stake In TiVo

Ken Griffin’s Citadel has taken a 5.3 percent stake in TiVo.

It is not an activist position since the Chicago hedge fund manager used a 13-G filing, which suggests a passive investment, rather than a 13-D, which would require him to state his intentions.

This is not a new position for Griffin. At the end of the fourth quarter, Citadel owned a small position in TiVo’s common as well as puts and call options on the stock.

TiVo also is not one of those stocks where you see a concentration of hedge funds. In the fourth quarter, two noticeable ones took initial positions. Hound Partners, run by Jonathan Auerbach and seeded by Tiger Management’s Julian Robertson, bought nearly 1.3 million shares, while Raptor Capital Management, run by Jim Pallotta, and the successor firm to the one-time huge equity operation at Tudor Investment, bought about 284,000 shares.

TiVo is not exactly a widely followed stock. Earlier this month S&P did rate it Hold with a $10 price target. The shares were up 1.6 percent or so at midday, to $8.79.

This was one day before TiVo priced a private offering of $150 million of 4 percent five-year Convertible Senior Notes. The size of the offering was increased from a previously announced $120 million. TiVo said it would use the proceeds to fund intellectual property litigation and research and development spending and for general corporate purposes, which may include funding sales and marketing expenses, increasing working capital, making capital expenditures and potentially for strategic acquisitions.

It’s that litigation that is holding down its stock.

It is awaiting a decision in a patent infringement lawsuit against EchoStar Communications and trials are scheduled in cases against AT&T and Verizon. It also faces counter actions from AT&T, EchoStar, Microsoft, Verizon, and Motorola.

In January Microsoft filed a patent infringement lawsuit against the company before the International Trade Commission stemming from the importation of certain set-top boxes. TiVo warned at the time it expected to incur “material litigation expenses,” adding, “An adverse outcome in this lawsuit could result in us being barred from importing DVRs, which would harm our business.”

On February 24, the ITC voted to investigate the complaint and TiVo said the ITC has set July 2, 2012 as its target date for completing the investigation.

Meanwhile, on March 1, TiVo reported a $34.4 million loss for the fourth quarter of 2010, more than triple the net loss of $10 million in the year earlier quarter, and warned the loss would widen in the first quarter of this year. The company attributed the larger loss to a decline in service and technology revenue, a larger hardware loss due to holiday pricing that offered subsidized hardware for a lower upfront price to consumers in exchange for higher monthly subscription fees, and from higher operating expenses, stemming from increased total legal spending and R&D investments.

All these uncertainties certainly make Citadel’s investment curious, especially since it is a passive one.