Investors on Friday panned Macrovision Corp.'s proposed $2.8 billion acquisition of TV listings provider Gemstar-TV Guide International Inc., sending the stock price of each company plummeting.

Shares of Macrovision, a developer of media piracy protection software, plunged 26% in afternoon trading to $19.28 after the company said it would raise $800 million in debt to finance the transaction and on worries about the challenge of integrating Gemstar-TV Guide. The target's stock slid 17% to $4.95 as investors recoiled against the low premium on the offer.

Under terms of the deal, Santa Clara, Calif.-based Macrovision said it will pay $6.35 in cash or 0.2548 of a Macrovision share for each Gemstar share. The cash offer is 6.2% higher than GemstarÕs closing price of $5.98 Thursday. The cash component of the deal won't exceed $1.55 billion, the companies said.

Executives from both companies fielded several questions from analysts during a conference call regarding the valuation of the deal. Gemstar CEO Rich Battista, who along with the company's chief financial officer, Bedi Singh, will leave the combined company after the acquisition closes, was repeatedly put on the defensive.

"We clearly think this premium is very strong. ... We are creating real strategic value for our shareholders," he said. "We personally believe the upside potential in this deal is terrific."

The companies said the deal will enable consumers to pull up a guide on their TV and receive personalized content and information regarding TV shows, read movie reviews before purchasing or renting a film, view personal photos or tap into their music library.

Plans for Gemstar-TV Guide's print operations weren't disclosed. During the conference call, Macrovision CEO Fred Amoroso said he planned "to spend time over the next few months ... and learn a lot more about the entertainment side of the business before making any decisions about how their strategic value would fit into our overall approach."

Gemstar announced in July that it hired UBS and Wachtell, Lipton, Rosen & Katz to advise the company on its strategic alternatives. The move came after Rupert Murdoch's News Corp., which has a 41% stake in the company, announced it would buy Dow Jones & Co. It's been speculated that Murdoch wanted to raise cash to fund the Dow Jones deal, which is expected to close before the end of this year. News Corp. has agreed to vote its shares in favor of the transaction, the companies said. Gemstar merged with TV Guide Inc. in a $14.2 billion deal in 2000.

Macrovision stockholders will continue to own one share in the new company for each share held at closing. When the deal is completed, Macrovision shareholders will own about 53% of the combined company, and former Gemstar stockholders will own 47%.

Macrovision's Amoroso will continue as president and chief executive of the new company, and chief financial officer James Budge will serve as CFO at the merged company. The new board will include four directors designated by Macrovision and three chosen by Gemstar. The Gemstar board has unanimously approved the transaction, which is expected to close in the second quarter of 2008 pending stockholder and regulatory approvals.

Last month, Macrovision said it agreed to acquire certain technology assets from Cryptography Research Inc., a San Francisco research and development company, for $45 million in cash plus warrants exercisable for Macrovision stock.

Macrovision also acquired privately held All Media Guide Holdings Inc. in November. All Media is one of the world's largest providers of information databases for entertainment products, such as music, movies, and games.

During the conference call, Amoroso was questioned about Macrovision's ability to meld its recent acquisitions. "Is it challenging? Sure, it's challenging. Everything in life is," he said. "The breadth is not out of the bandwidth of everybody in the management team."