Mergers, acquisitions to remain hot in '07


Merger and acquisition activity in the media sector should stay high and could even increase next year, according to Susquehanna Financial Group, as mature businesses seek to spur their growth and private-equity firms remain awash in cash.

The Wall Street research firm said that interest should remain high for the acquisition of both new-media firms and more traditional content and distribution businesses.

Susquehanna focused its attention on nine smaller companies: Image Entertainment Inc., New Frontier Media, Imax Corp., Lionsgate, ValueVision Media, TiVo Inc., 4Kids Entertainment, World Wrestling Entertainment and Playboy Enterprises.

Imax and Image already have formed special committees to seek potential buyers or strategic alternatives, and Imax stock being down more than 65% in the past four months ought to spark some interest.

WWE, according to the firm, has "no real need to be a public company" given that it has about $4 per share in cash and no debt. Susquehanna analyst Michael Kelman suggests that the McMahon family, which already owns about 70% of WWE, simply could take it private.

4Kids also has a significant amount of cash on hand and also has a strategic relationship with Microsoft Corp., making it a nice takeover target, though the company's fundamentals "continue to deteriorate," Kelman said.

Lionsgate is one of the few independent studios and has a disciplined approach to business, a quality financial buyers find appealing.

While TiVo's fundamentals are nothing special and its litigation with EchoStar Communications could drag on for two years, activity in the buying and selling of its stock options make it an "interesting" play.

Kelman said the markets are saying that there is a better chance of TiVo shares rising greater than 15% than there is of them falling more than 15%.

Of the nine stocks, TiVo is the only one receiving a "negative" rating from Kelman.