Macrovision Corp announced on Friday it would buy Gemstar-TV Guide International Inc for $2.8 billion in cash and stock to form a broad video entertainment distributor as investor concern over the deal's price caused both companies' shares to drop.

Gemstar shares dropped more than 16.5 percent, or 99 cents, to $4.99 as its shareholders concluded the deal price was too low. Macrovision shares dipped 23.4 percent, or $6.09, to $19.90 after the company said it would raise $800 million in new debt to finance the deal.

Santa Clara, Calif.-based Macrovision's main product line includes technology that prevents people from copying audio and video programs. Meanwhile, Gemstar's main business is Gemstar TV Guide, which informs viewers what to watch.

The new, combined company will allow consumers to personalize their on-screen TV menu with access to personal photos, movie reviews, music libraries and information about their favorite shows.

Under the terms of the agreement, Gemstar-TV Guide shareholders will receive $6.35 in cash, or 0.02548 of a share of common stock in a new holding company that will include both Gemstar and Macrovision, Macrovision said in a statement.

The per share value of the transaction represents a 25.0 percent premium to the 10 day average closing price of Gemstar-TV Guide's common stock prior to its review of strategic alternatives announced on July 9.

News Corp. Chief Rupert Murdoch, who owns 41 percent of Gemstar, agreed to vote in favor of the deal.

California