Wall Street debating ABC's fate

Analysts: Problem is finding a buyer for low-rated TV net

Wall Street has long seen sense in Walt Disney Co. selling or spinning off ABC, the low-rated TV network and the one piece that does not seem to fit well with the entire entertainment empire.

But the problem is finding a buyer, analysts say.

On Wednesday, the long-debated issue resurfaced after prosecutors charged a secretary to a senior Disney executive and her boyfriend with trying to entice would-be insider traders by claiming they knew the company was in advanced discussions with private equity to sell ABC.

Wall Street took notice. Disney's shares, typically steady, shot up nearly 5% before Disney said the claim was false. The stock then backtracked to close up 2.3%.

Some believe the timing is right amid an advertising rebound and prospective new revenue for broadcasters from transmission deals with cable operators, which should boost ABC's value.

And, the costs of producing original series and running a news operation continue to climb.

But cross-ownership restrictions and antitrust issues would make it a tough sell to rival broadcasters and natural fits like CBS, Comcast Corp. -- soon to own NBC -- and News Corp, which owns Fox. Some say private equity might be the way to go, but so far no names have cropped up.

"I've been anticipating a new wave of consolidation in the TV and radio broadcasting business. And the notion of Disney selling ABC fits into that picture," said Paul Kagan, chief executive officer of PK World Media.

ABC, third of four networks in the ratings race, recently overhauled its prime-time lineup -- the second year in a row it revamped its schedule during the upfronts season, when broadcasters negotiate with advertisers.

Soleil Securities' Alan Gould values the broadcast division, including ABC with 10 TV stations and its production and distribution business, at $6.4 billion. TV production and distribution is valued at about $1.8 billion, he added.

When Disney released second-quarter earnings this month, evidence of lower ratings, sliding income and ad revenue at ABC triggered a 3.5% stock sell-off.

"Given a reasonable valuation for ABC, we believe the Street would be happy with the sale," said Gould. "We do not believe ABC is strategically critical to Disney and it does not seem to be a business where Disney has a competitive edge."

CEO Bob Iger did not rule out a sale when asked outright during an annual shareholders' meeting in March. Unlike film, theme parks and consumer merchandise, where Disney can market a franchise across several markets, TV appears isolated.

"I do believe Disney's senior management is looking at what is the long-term value of ABC and whether or not it lives up to the objectives of Disney," said one media consultant.

The consultant said Disney could try and sell part of the division, say stations, and keep production and distribution.

But others say selling any part would be complicated.

"ABC would be very hard to divest. I don't think you just peel off the network and sell it. There are a lot of cross ownership and regulatory restrictions," said James Marsh, analyst with Piper Jaffray.

David Miller, analyst with Caris & Co, pointed out a U.S. Federal Communications Commission rule banning any one entity from owning two different broadcasters.

He ruled out Viacom because it may have to issue stock to finance a deal, and Time Warner, which owns half the CW network.

"Whoever bought it would almost have to have no media footprint. My sense is if you are bullish on media, you'd already be in the media business. Even private equity firms have ownership in TV, radio and newspapers," Marsh said.
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