Sun Valley Preview: Media Deal Chatter Picks Up as Moguls Head to Idaho
Two big recent TV station deals and buzz about cable operator consolidation have reignited talks of possible industry transactions ahead of the annual Allen & Co. gathering.
Deal talk and activity in the media and entertainment industry has been heating up ahead of Tuesday's start of the 31st annual Allen & Co. gathering of media and technology moguls in Sun Valley, Idaho, which has long served as a forum for industry CEOs to discuss possible mergers, acquisitions or alliances.
Two recent major TV station deals and the hunt by John Malone and his Liberty Media to find possible cable operators to acquire via Charter Communications -- in which Liberty owns a 27.3 percent stake -- have been key contributors to the return of more prominent M&A talk.
Hollywood conglomerates and other industry giants have in recent years focused on their core entertainment operations. For example, Time Warner has shed Time Warner Cable and AOL and is planning to spin off its Time Inc. magazine business. Similarly, Rupert Murdoch has split his media empire into the 21st Century Fox entertainment company and publishing firm News Corp. And CBS Corp. is looking to separate its outdoor advertising business from the rest of its portfolio.
But last month, newspaper publisher Gannett announced an agreement to acquire TV station group Belo Corp. for $1.5 billion in cash and $715 million in debt in a transaction that will boost its station count from 23 to 43. And at the beginning of July, Tribune Co. said it would pay $2.73 billion to acquire the 19 TV stations owned by Local TV, taking its station count from 23 to 42.
Plus, Walt Disney Co., 21st Century Fox and Comcast/NBCUniversal could later this week announce a winner of the auction for online video site Hulu, with DirecTV, AT&T/Peter Chernin and The Hollywood Reporter owner Guggenheim Digital Media among the bidders.
All this has led to some discussion of whether further industry dealmaking could be in the works. "The recent deals have at least caused some acquisitions headlines and deal chatter on Wall Street, but we'll see if more will follow," said one Street observer.
With around 300 content, pay TV and tech moguls descending on Sun Valley this week, the hosts at investment banking boutique Allen & Co. are likely to welcome the recent wave of deal chatter. Expected guests include Murdoch, Jeff Bewkes of Time Warner, Bob Iger of Disney, Philippe Dauman of Viacom, Harvey Weinstein of The Weinstein Co. and such Silicon Valley top execs as Bill Gates of Microsoft and Sheryl Sandberg of Facebook.
Among various other deals, Comcast's possible interest in NBCUniversal came up in 2009 before a deal was sealed, but Sun Valley has drawn less deal buzz in recent years.
Similar to last year, when he was focused on gaining control of Sirius XM Radio, Malone could get much press attention in Sun Valley this week as Liberty and Charter have looked at Time Warner Cable, which in turn has had exploratory talks about possible deals with Cox Communications and Cablevision Systems, according to reports.
Malone and Liberty CEO Greg Maffei have talked up the need for cable consolidation to ensure enough scale in increasingly difficult carriage talks with network groups.
Some observers say pay TV consolidation is indeed likely, whether it involves Time Warner Cable or not. "As programming costs rise, small cable operators are going to be forced sellers," said Craig Moffett, analyst at Moffett Research. "There are going to be bargains to be had. We're heading into a buyer's market of epic proportions. Malone has simply bought himself a ticket to the fire sale. There will be ample opportunities to make money without having to buy Time Warner Cable."
Observers also expect more TV station group consolidation. "We continue to see the M&A pipeline as robust and anticipate Sinclair Broadcast Group and Nexstar being participants over the next 12 to 18 months," Wells Fargo analyst Marci Ryvicker wrote in a report last week. "There are still many groups out there known to be up for sale -- we would peg there to be about $4 billion of 'low hanging' fruit, groups owned by private equity groups and/or out of bankruptcy."
Meanwhile, Davenport & Co. analyst Michael Morris recently suggested that pure-play cable networks firms Discovery Communications, Scripps Networks Interactive and AMC Networks should consider a combination.
"Network scale matters when it comes to negotiating higher affiliate rates from pay TV distributors," Morris wrote in a report. "The three highest multiple networks businesses had three of the lowest domestic affiliate growth rates in the first quarter. Distributors are likely preparing for higher fees from broadcasters and sports networks by more aggressively fighting fee increases from entertainment cable networks -- as such, we see increased scale as a core means for pure-play nets to improve their relative position and drive higher domestic growth."
Morris said he would "view these three companies as better competitively positioned within the existing pay TV eco-system or with new distribution partners as a consolidated entity."