NOVATO -- Digital media software developer Sonic Solutions (Nasdaq: SNIC) has entered into an agreement with Santa Clara-based Rovi Corp. (Nasdaq: ROVI) to be acquired in a two-stage merger valued at about $720 million in cash and stock.

The definitive deal, signed Wednesday, would exchange Sonic shares for cash, Rovi stock or a combination during a 20-business-day period in January. If approved by shareholders, the deal is set to close in the first quarter.

Sonic’s coupled with Rovi’s multimedia guide software and metadata, together on hundreds of millions of devices, will generate a richer user experience and expanded advertising distribution, according to Rovi. Sonic's RoxioNow product already uses Rovi's TotalGuide system.

“Rovi and Sonic share a vision for the future of digital entertainment and how to deliver the best consumer experience possible,” said Fred Amoroso, Rovi president and chief executive officer.

Dave Habiger, president and CEO of Sonic Solutions, said the rate of change in digital entertainment has accelerated in the past two years, specifically for premium content.

"By joining forces with Rovi, we will provide the industry with a broad range of solutions that strengthens our customers’ ability to compete as consumers' primary source for digital entertainment," Mr. Habiger said. "For our Hollywood studio partners, eager to expand digital delivery, the larger footprint of our combined company enables them to market their content broadly."

Founded in 1986, Sonic has moved from being a top publisher of consumer and professional CD and DVD creation software to an early provider of video-streaming software with the acquisition of CinemaNow in 2008 and DivX in October of this year.

Sonic reported net revenue of $104.3 million in fiscal 2010, which ended March 31. The company employs 950.

Among Rovi's lead products are online multimedia content guides licensed to cable television companies, online stores and various outlets. The company anticipates 2010 revenue will be $530 million to $540 million.

The value of the merger deal is $14.17 per share of Sonic common stock, or a 38.2 percent premium over the closing per-share price of nearly $11.21 the Tuesday.  Sonic's stock price was $14.78 a share at the end of trading today.

The price of Rovi's stock was $57.60 per share at the close of trading today.

William Blair & Company LLC and Morrison & Foerster LLP advised Sonic in the deal. Cooley LLP and JPMorgan advised Rovi's board of directors.