- Merger mania is coming to the media business.
- A single merger or acquisition move could set off a series of similar moves in this space.
- If you like mergers, there are a number of media names to watch, starting with Viacom.
Merger mania is coming to the media business, for two reasons.
First, there are motivated sellers. Viacom (NASDAQ:VIAB) and CBS (NYSE:CBS), two of the biggest pieces on the media board, are both controlled by nonagenarian Sumner Redstone. Redstone has no heir. Redstone is going to die someday, and on that day the value of the companies, rather than the reality of the companies, will become paramount.
Second, there are motivated buyers. The success of Comcast (NASDAQ:CMCSA) in marrying infrastructure to media, and obtaining vertical integration that will let it weather the storm of cord-cutting, is a roadmap other infrastructure companies want to follow. The boom in sports rights is already being driven by this sort of thing, with rights to English Premier League games now held entirely by companies that control customer access – BskyB, Comcast, and British Telecom (NYSE:BT).
We got just a little taste of what is to come when Verizon (NYSE:VZ) bought AOL (NYSE:AOL) recently. Verizon bought AOL for its Internet video advertising business. It also bought AOL’s content, which is what most people focused on. But the Internet video technology was the key, assuming Verizon also picks up some media assets that need it.
There are going to be plenty around. In addition to Viacom and CBS, you can bet that Sony (NYSE:SNE) is going to need to break itself apart soon. The former consumer electronics giant still makes a profit at Sony Pictures and Sony Music, but it has been throwing pieces of itself onto the fire for years with no effect. Eventually the “crown jewels” have to come to market.
Of all these companies it is Viacom that looks like it will be first to go. It sells at a Price/Earnings multiple of just 15.5 because its networks are dependent upon cable providers, phone providers, and satellite companies for carriage. While Viacom has seized control of its Internet streaming and made some money in Comedy Central podcasts, this has actually had little impact on the bottom line. The March quarter was an absolute disaster, a loss of $53 million on revenue of $3 billion. With tent poles like The Daily Show going and The Colbert Report gone (ironically to CBS) the company is very, very vulnerable to a takeover.
What’s most important to note is that a move to buy anyone is likely to set off a feeding frenzy. Once it becomes clear that other companies are going the Comcast way (or if Comcast makes the first move for Viacom) desperation is going to set in, very quickly. Companies like Discovery Communications (NASDAQ:DISCA), and Scripps Networks Interactive (NYSE:SNI) could quickly be brought into play, and once that happens it becomes open season.
So if you like mergers, buy some media.
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