Fox’s Play for Content Throne Buoys Discovery, Scripps: Real M&A
2014-07-17 21:34:47.510 GMT
(For a Real M&A column news alert: SALT REALMNA <GO>.)
By Tara Lachapelle and Brooke Sutherland
July 17 (Bloomberg) -- Stay tuned, because the channels are
about to change.
Time Warner Inc., the owner of HBO and TNT, confirmed
yesterday that it received a more than $75 billion offer from
Rupert Murdoch’s Twenty-First Century Fox Inc. Shares of content
providers such as AMC Networks Inc., Scripps Networks
Interactive Inc. and Discovery Communications Inc. rallied
because they may be the next to seek tie-ups. Media stocks
representing about $90 billion of shareholder value are now
speculated to be in play, without even including Time Warner.
A driving force for media consolidation is Comcast Corp.’s
pending purchase of Time Warner Cable Inc. If cleared by
antitrust regulators, that deal will combine the two largest
U.S. cable companies, leaving suppliers of content to find ways
to bolster their own scale and strengthen their power to
negotiate with distributors.
“It’s open game,” Vijay Jayant, a New York-based analyst
at International Strategy & Investment Group LLC, said in a
phone interview. “You’ve got this behemoth transaction for Time
Warner, which fortifies the concept that the smaller companies
have to get bigger or get out.”
Significant consolidation among content providers could
also put pressure on Netflix Inc., giving the online-streaming
service a reason to consider striking a deal with a company such
as CBS Corp. or Walt Disney Co., said Morningstar Inc. CBS is
also a logical counterbidder for Time Warner, and even
technology giants such as Google Inc. could be spurred to enter
the fray, said Wunderlich Securities Inc.
‘Going Wild’
Fox’s proposal, which Time Warner rejected, included 1.531
Fox non-voting shares and $32.42 in cash, Time Warner said
yesterday in a statement. The transaction would be risky for
regulatory and operational reasons, and Time Warner’s assets
will increase in value if the company continues on its own, the
$73 billion company said. Fox is willing to raise its offer
higher than $85 a share if Time Warner engages in talks and
opens its books to Fox, according to a person with knowledge of
the matter.
Shares of AMC, Scripps and Lions Gate Entertainment Corp.
rallied more than 4 percent yesterday, while Discovery jumped
more than 6 percent for its biggest increase in almost three
years. Viacom Inc. gained more than 3 percent and Starz rose 1.6
percent.
Today, shares of the media companies rose for a second day.
“Everyone is excited about the deal so everything in the
media space is up,” David Miller, a Los Angeles-based managing
director at Topeka Capital Markets Inc., said in a phone
interview. “The market is going wild.”
Too Rich
While content providers such as Scripps and AMC have been
considered takeover targets for years, they still haven’t been
bought. Their valuations may have been too rich for any
interested suitors to strike just yet, said Martin Pyykkonen, a
Denver-based analyst at Rosenblatt Securities Inc.
“Discovery, Scripps and AMC in particular have traded at a
premium multiple that just hasn’t been something any of the big
guys have wanted to swallow,” Pyykkonen said in a phone
interview. Still, “they all make sense as targets. I could see
one or two or all three getting taken out by larger
conglomerates.”
Another obstacle is that many of these companies are
controlled by founding families, so it’s up to them if they want
to sell, said ISI’s Jayant. The heirs to Edward W. Scripps have
a special class of stock in the eponymous company, which owns
HGTV and part of the Food Network. The Dolan family still
controls the voting rights at AMC, whose chairman is billionaire
Charles Dolan, the founder of Cablevision Systems Corp., from
which AMC was spun off in 2011.
Natural Target
AMC is the “most natural” target because it’s purely a
cable-networks company and has a “bite size” market value at
$4.6 billion, according to Vasily Karasyov, a New York-based
analyst at Sterne Agee & Leach Inc. In addition to its popular
shows “The Walking Dead,” “Breaking Bad” and “Mad Men,”
AMC also owns IFC and SundanceTV.
Discovery’s board already discussed a potential bid for
Scripps last year as part of a routine quarterly survey of
potential acquisitions for the $28 billion company, people with
knowledge of the situation said in December.
A representative for Lions Gate had no immediate comment on
possible deals, while representatives for Starz didn’t respond
to a request for comment. Representatives for AMC, Scripps, CBS,
Disney, Discovery and Viacom declined to comment.
Consolidation Wave
Almost $200 billion of media acquisitions have been
announced this year, including Comcast’s purchase of Time Warner
Cable and AT&T Inc.’s takeover of DirecTV, both valued at more
than $65 billion including debt.
“The scale of consolidation on the content side has not
been anything close to what has happened on the distribution
side,” Tuna Amobi, a New York-based equity analyst at S&P
Capital IQ, said in a phone interview. A sale of Time Warner
“would be a major transformational deal that could set off
another wave of major consolidation among content providers.”
Bulking up will also give content providers more
negotiating power with streaming services such as Netflix. Faced
with the prospect of higher fees for redistributing movies and
TV shows, it could make sense for Netflix to combine with a
company such as CBS or Disney that may want more of a digital
footprint, according to Peter Wahlstrom, a Chicago-based analyst
at Morningstar.
Starting Point
As far as Time Warner, this may be only the beginning of
the bidding process, said Pyykkonen of Rosenblatt.
“Everything is for sale at a certain price,” he said.
“The number Murdoch and Fox have thrown out, that’s a starting
point. You never come out with your best offer initially.”
Time Warner isn’t interested in exploring a sale while
potential suitors Comcast and AT&T are busy with other deals and
unable to bid for the media company, according to a person with
knowledge of the matter. If Fox’s offer puts the company in
play, other suitors may emerge anyway, said Matthew Harrigan, a
Denver-based analyst at Wunderlich. Google is among companies
that might be more inclined to consider a bid, he said.
A representative for Google declined to comment.
“Maybe these companies wouldn’t have liked to do anything
right away,” Harrigan said in a phone interview. But if
“people see the asset being moved from the market for eternity,
it creates a different dynamic than it otherwise would.”
Fox Bid
Fox’s bid probably also got CBS’s attention, according to
S&P’s Amobi.
“It’s hard to imagine that CBS doesn’t take a look at Time
Warner,” he said. “There’s obviously a case to be made as well
as to why both companies could be very good merger partners.”
The same wasn’t true for Time Warner and AOL Inc. The two
merged in 2001 in a deal valued at more than $100 billion that
triggered record losses, driving the shares down 68 percent. AOL
was spun back out in 2009 and Time Warner’s stock has almost
tripled since then.
Rather than Time Warner combining with Fox next, Topeka
Capital’s Miller said he thought the cable consolidation would
have started with smaller content providers such as AMC.
With all the deals among distributors, there “has to be
some kind of appropriate response on the network side,” he
said. AMC, “we thought that someone acquiring those guys would
be kind of the first response. Instead the first response has
been potentially Fox buying Time Warner. I think it’s taken a
lot of folks in the media community by surprise.”
For Related News and Information:
Murdoch Said Open to Offer More Than $75 Billion for Time Warner
NSN N8T75S6JTSGA <GO>
Time Warner-CBS Seen Candidate for Blockbuster Merger: Real M&A
NSN MLOBNY6VDKHV <GO>
Scripps Seen Luring Suitors After Discovery Weighs Bid: Real M&A
NSN MXPTPM6S972R <GO>
AMC Networks Peak Value Seen Luring Dolans to Cash In: Real M&A
NSN MI8E1S6TTDVD <GO>
Real M&A columns: NI REALMNA <GO>
Top deal stories: DTOP <GO>
--With assistance from Rob Golum and Christopher Palmeri in Los
Angeles, Brian Womack in San Francisco, Alex Sherman, Jonathan
Erlichman, Jeffrey McCracken and Jennifer Surane in New York and
Anousha Sakoui in London.
To contact the reporters on this story:
Tara Lachapelle in New York at +1-212-617-8911 or
tlachapelle@bloomberg.net;
Brooke Sutherland in New York at +1-212-617-0448 or
bsutherland7@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Whitney Kisling
2014-07-17 21:34:47.510 GMT
(For a Real M&A column news alert: SALT REALMNA <GO>.)
By Tara Lachapelle and Brooke Sutherland
July 17 (Bloomberg) -- Stay tuned, because the channels are
about to change.
Time Warner Inc., the owner of HBO and TNT, confirmed
yesterday that it received a more than $75 billion offer from
Rupert Murdoch’s Twenty-First Century Fox Inc. Shares of content
providers such as AMC Networks Inc., Scripps Networks
Interactive Inc. and Discovery Communications Inc. rallied
because they may be the next to seek tie-ups. Media stocks
representing about $90 billion of shareholder value are now
speculated to be in play, without even including Time Warner.
A driving force for media consolidation is Comcast Corp.’s
pending purchase of Time Warner Cable Inc. If cleared by
antitrust regulators, that deal will combine the two largest
U.S. cable companies, leaving suppliers of content to find ways
to bolster their own scale and strengthen their power to
negotiate with distributors.
“It’s open game,” Vijay Jayant, a New York-based analyst
at International Strategy & Investment Group LLC, said in a
phone interview. “You’ve got this behemoth transaction for Time
Warner, which fortifies the concept that the smaller companies
have to get bigger or get out.”
Significant consolidation among content providers could
also put pressure on Netflix Inc., giving the online-streaming
service a reason to consider striking a deal with a company such
as CBS Corp. or Walt Disney Co., said Morningstar Inc. CBS is
also a logical counterbidder for Time Warner, and even
technology giants such as Google Inc. could be spurred to enter
the fray, said Wunderlich Securities Inc.
‘Going Wild’
Fox’s proposal, which Time Warner rejected, included 1.531
Fox non-voting shares and $32.42 in cash, Time Warner said
yesterday in a statement. The transaction would be risky for
regulatory and operational reasons, and Time Warner’s assets
will increase in value if the company continues on its own, the
$73 billion company said. Fox is willing to raise its offer
higher than $85 a share if Time Warner engages in talks and
opens its books to Fox, according to a person with knowledge of
the matter.
Shares of AMC, Scripps and Lions Gate Entertainment Corp.
rallied more than 4 percent yesterday, while Discovery jumped
more than 6 percent for its biggest increase in almost three
years. Viacom Inc. gained more than 3 percent and Starz rose 1.6
percent.
Today, shares of the media companies rose for a second day.
“Everyone is excited about the deal so everything in the
media space is up,” David Miller, a Los Angeles-based managing
director at Topeka Capital Markets Inc., said in a phone
interview. “The market is going wild.”
Too Rich
While content providers such as Scripps and AMC have been
considered takeover targets for years, they still haven’t been
bought. Their valuations may have been too rich for any
interested suitors to strike just yet, said Martin Pyykkonen, a
Denver-based analyst at Rosenblatt Securities Inc.
“Discovery, Scripps and AMC in particular have traded at a
premium multiple that just hasn’t been something any of the big
guys have wanted to swallow,” Pyykkonen said in a phone
interview. Still, “they all make sense as targets. I could see
one or two or all three getting taken out by larger
conglomerates.”
Another obstacle is that many of these companies are
controlled by founding families, so it’s up to them if they want
to sell, said ISI’s Jayant. The heirs to Edward W. Scripps have
a special class of stock in the eponymous company, which owns
HGTV and part of the Food Network. The Dolan family still
controls the voting rights at AMC, whose chairman is billionaire
Charles Dolan, the founder of Cablevision Systems Corp., from
which AMC was spun off in 2011.
Natural Target
AMC is the “most natural” target because it’s purely a
cable-networks company and has a “bite size” market value at
$4.6 billion, according to Vasily Karasyov, a New York-based
analyst at Sterne Agee & Leach Inc. In addition to its popular
shows “The Walking Dead,” “Breaking Bad” and “Mad Men,”
AMC also owns IFC and SundanceTV.
Discovery’s board already discussed a potential bid for
Scripps last year as part of a routine quarterly survey of
potential acquisitions for the $28 billion company, people with
knowledge of the situation said in December.
A representative for Lions Gate had no immediate comment on
possible deals, while representatives for Starz didn’t respond
to a request for comment. Representatives for AMC, Scripps, CBS,
Disney, Discovery and Viacom declined to comment.
Consolidation Wave
Almost $200 billion of media acquisitions have been
announced this year, including Comcast’s purchase of Time Warner
Cable and AT&T Inc.’s takeover of DirecTV, both valued at more
than $65 billion including debt.
“The scale of consolidation on the content side has not
been anything close to what has happened on the distribution
side,” Tuna Amobi, a New York-based equity analyst at S&P
Capital IQ, said in a phone interview. A sale of Time Warner
“would be a major transformational deal that could set off
another wave of major consolidation among content providers.”
Bulking up will also give content providers more
negotiating power with streaming services such as Netflix. Faced
with the prospect of higher fees for redistributing movies and
TV shows, it could make sense for Netflix to combine with a
company such as CBS or Disney that may want more of a digital
footprint, according to Peter Wahlstrom, a Chicago-based analyst
at Morningstar.
Starting Point
As far as Time Warner, this may be only the beginning of
the bidding process, said Pyykkonen of Rosenblatt.
“Everything is for sale at a certain price,” he said.
“The number Murdoch and Fox have thrown out, that’s a starting
point. You never come out with your best offer initially.”
Time Warner isn’t interested in exploring a sale while
potential suitors Comcast and AT&T are busy with other deals and
unable to bid for the media company, according to a person with
knowledge of the matter. If Fox’s offer puts the company in
play, other suitors may emerge anyway, said Matthew Harrigan, a
Denver-based analyst at Wunderlich. Google is among companies
that might be more inclined to consider a bid, he said.
A representative for Google declined to comment.
“Maybe these companies wouldn’t have liked to do anything
right away,” Harrigan said in a phone interview. But if
“people see the asset being moved from the market for eternity,
it creates a different dynamic than it otherwise would.”
Fox Bid
Fox’s bid probably also got CBS’s attention, according to
S&P’s Amobi.
“It’s hard to imagine that CBS doesn’t take a look at Time
Warner,” he said. “There’s obviously a case to be made as well
as to why both companies could be very good merger partners.”
The same wasn’t true for Time Warner and AOL Inc. The two
merged in 2001 in a deal valued at more than $100 billion that
triggered record losses, driving the shares down 68 percent. AOL
was spun back out in 2009 and Time Warner’s stock has almost
tripled since then.
Rather than Time Warner combining with Fox next, Topeka
Capital’s Miller said he thought the cable consolidation would
have started with smaller content providers such as AMC.
With all the deals among distributors, there “has to be
some kind of appropriate response on the network side,” he
said. AMC, “we thought that someone acquiring those guys would
be kind of the first response. Instead the first response has
been potentially Fox buying Time Warner. I think it’s taken a
lot of folks in the media community by surprise.”
For Related News and Information:
Murdoch Said Open to Offer More Than $75 Billion for Time Warner
NSN N8T75S6JTSGA <GO>
Time Warner-CBS Seen Candidate for Blockbuster Merger: Real M&A
NSN MLOBNY6VDKHV <GO>
Scripps Seen Luring Suitors After Discovery Weighs Bid: Real M&A
NSN MXPTPM6S972R <GO>
AMC Networks Peak Value Seen Luring Dolans to Cash In: Real M&A
NSN MI8E1S6TTDVD <GO>
Real M&A columns: NI REALMNA <GO>
Top deal stories: DTOP <GO>
--With assistance from Rob Golum and Christopher Palmeri in Los
Angeles, Brian Womack in San Francisco, Alex Sherman, Jonathan
Erlichman, Jeffrey McCracken and Jennifer Surane in New York and
Anousha Sakoui in London.
To contact the reporters on this story:
Tara Lachapelle in New York at +1-212-617-8911 or
tlachapelle@bloomberg.net;
Brooke Sutherland in New York at +1-212-617-0448 or
bsutherland7@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Whitney Kisling