The hottest names this week were ATUS (245bps better than the S&P), DISH (237bps), WWE (182bps), AMCX (92bps), and CBS (5bps).
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With CMCSA earnings coming up next week (1/23), we provide our thoughts on the numbers, sentiment and what to do with the stocks into the print. Please see the Full PDF link below for our detailed 30 page slide deck. OK
We think an SSP-COX deal makes the most sense. Recall that on 7/24, Cox Enterprises announced its intention to explore strategic options for its 14 TV stations in 10 markets. Our view at the time was that Cox understood its need for scale (Cox covers only 6% of the U.S. with the UHF discount) and is looking for a partner (i.e. GTN-Raycom) rather than the highest bidder. While the process initially involved just about every broadcaster in the space, there are 3 final bidders per press reports – SSP, TGNA & Hearst – looking to pay “almost $3B”, or 11x ‘18/’19 EBITDA per our ests. Based on our analysis, an SSP deal makes the most sense from a geographic/regulatory and an accretion standpoint (16% ‘18/’19 blended FCF/sh.) but we also ran the math for two additional scenarios: TGNA buys the whole thing (15% FCF accretive) or TGNA & Hearst team up to split the assets (12% FCF accretive to TGNA). CONFIRMATION SHOULD COME END OF JAN/EARLY FEB.
I generally love reading these proxies (I am that big of a nerd) esp. the detailed background leading up to the final transaction because there’s usually something unexpected that occurs during negotiations. In this particular filing, we learned that once TRCO terminated the Sinclair Merger Agreement (Aug. 9, 2018), mgmt. immediately contacted 9 parties (6 strategics and 3 private equity) with respect to a potential acquisition – 5 of whom actually bid. We know how this story ends – NXST won the auction, paying a total of $6.4B consisting of ~$4.2B in equity ($46.50/sh.) & ~$2.2B of debt & pensions. Below we provide the identity of each bidder & summarize their respective TRCO M&A journeys.
This note details our conversations with London investors, with the biggest surprises being: 1) The skepticism regrading New DIS – particularly the value of streaming vs. long-tailed content. That said, should uncertainties become more certain, this is the one most still want to buy. 2) The tremendous pushback on CMCSA – all because of Sky. And 3) the number of requests for our ATUS and OUT models (which must be positive signs, no?). PERHAPS THE BIGGEST TAKEAWAY IS HOW IMPORTANT MANAGEMENT TRANSPARENCY AND CREDIBILITY HAVE BECOME – above and beyond the numbers and the balance sheet.
Eric, Stephan, Se and I are reintroducing our WHAT’s HOT WHAT’s NOT weekly wrap up – this being our first edition from Wolfe Research.
In this note, we dissect the NXST-TRCO deal. Recall that NXST formally announced its intended purchase of TRCO on 12/3 for ~$6.4B – comprised of $4.2B in equity ($46.50/sh.) and the assumption of ~$2.2B of net debt/pension liabilities representing a ~10x sellers multiple & 7.5x buyers multiple (on $160MM Yr. 1 synergies). Since this announcement, we’ve heard some concern from investors re. PF leverage, New FOXA and the regulatory path from here. We’ve also watched NXST’s stock underperform the S&P 500 by ~330bps. WE BELIEVE INVESTOR CONCERNS ARE OVERDONE. We reiterate our Outperform and $112 PT on NXST.
Friday afternoon (12/21) LAMR formally announced its acquisition of 8,500 billboards in 5 markets (Greenville/Spartanburg, South Carolina; Raleigh-Durham, North Carolina; Greensboro/Winston-Salem, North Carolina; Athens, Georgia; and La Crosse, Wisconsin) for $418.5MM from private company Fairway Outdoor Advertising. According to the release, the transaction represents a seller’s multiple of 12x trailing EBITDA, and LAMR expects to realize $4MM of synergies in 2019 (implying a buyer’s multiple of ~10.8x). The all-cash acquisition was funded under LAMR’s bank credit facility and new $175MM accounts receivable securitization line. We have pro-forma’d our model for the new boards, which increased our ‘19E/’20E revenue, EBITDA, and AFFO/share to $1.72B/$1.78B, $770MM/$806MM, and $5.79/$6.14 from $1.65B/$1.71B, $735MM/$770MM, and $5.59/$5.92.
It’s no secret that the RSN sale is not going swimmingly. While the press is reporting significant interest (i.e. 40 bidders in Round 1), the price tag seems to be well below what we would call DIS’s “acceptable range” so far. Of course, there is still quite a bit of runway left to get a final deal done – so it’s not ovah until it’s ovah. In this note, we dive deep into the RSNs – with a detailed history, financial snapshot and potential valuation. We also look at our coverage group to see who has the most interest AND ability to potentially transact. We have 2 over-riding conclusions: 1) While DIS is likely to lose ~$9B of deal value, the RSN sale does NOT materially impact PF synergies, PF growth, or DIS’s ability to de-lever. 2) We view the Yankees as the most likely buyer of YES ($5-6B) and SBGI as the most likely “winner” (or not) of the remaining 21 RSNs (~$11B).
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