Weekly Media Notes: Starz And 21st Century Fox Discuss Possible Acquisition

The media industry saw significant activity last week, with Starz approaching 21st Century Fox (NASDAQ:FOX) for a possible acquisition and U.S. District Judge in Los Angles denying the request of  Comcast’s (NASDAQ:CMCSA) media house (NBCUniversal) to dismiss the Metro-Goldwyn-Mayer (MGM) lawsuit of James Bond knockoff. Viacom (NASDAQ:VIA) in India has recently secured rights for the brand The Jungle Book and plans to sell related merchandise in the region. Below are some significant events pertaining to the media operators that were witnessed last week.

21st Century Fox

Last week, Starz and 21st Century Fox officials met to discuss a possible acquisition. ^[1] Starz provides a premium subscription video programming in the U.S. with its two flagship networks Starz and Encore. Starz has a subscriber base of over 57 million as of December last year. The company’s market capitalization is around $3.32 billion and it generated $1.77 billion in revenues and $247 million in net income for 2013. ^[2] The acquisition of Starz shouldn’t be an issue from financial point of view as Fox is already sitting on a cash pile of over $5 billion. ^[3] However, it is unlikely that Fox would want to go ahead and acquire Starz given its eye on much larger media house Time Warner (NYSE:TWX). Fox had made an $80 billion bid to acquire Time Warner, which was rejected by the company, and later Fox withdrew its bid. Fox will get more cash from the sale of Sky Deutschland and Sky Italia and it may then come up with another offer for Time Warner (see – Fox Will Raise $9 Billion Cash By Selling Its Italian And German Pay-TV Business) In the meantime, it will be interesting to see if the talks with Starz can materialize. Starz stock jumped more than 5% after the news broke out on September 24.

We estimate revenues of about $34 billion for 21st Century Fox in 2014, with EPS of $1.59, which is in line with the market consensus of $1.45-$1.64, compiled by Thomson Reuters. The company’s stock had declined close to 4% last week. We currently have a $39 price estimate for 21st Century Fox, which is about 20% ahead of the current market price.

Comcast’s NBCUniversal

U.S. District Judge in Los Angles has denied NBCUniversal’s request to dismiss MGM’s lawsuit for the movie project Section 6, which resembles MGM’s James Bond character. ^[4] The case was filed in April this year and now NBCUniversal must litigate the lawsuit. James Bond franchise is very popular and the latest movie Skyfall (2012) grossed more than $1 billion at the box-office globally. If MGM wins the lawsuit, Universal may have to significantly alter the screenplay for its Section 6 project.

We estimate revenues of about $68 billion for Comcast in 2014, with Non-GAAP EPS of $3.02, which is in line with the market consensus of $2.86-$3.1, compiled by Thomson Reuters. The company’s stock had declined close to 5% last week. We currently have a $60 price estimate for Comcast, which is about 10% ahead of the current market price.

Viacom

Viacom in India is expanding its portfolio of brands outside its house and it recently secured the rights for DQ Entertainment’s The Jungle Book. Viacom will offer themed apparel, toys, books and stationery under The Jungle Book brand. The company intends to sell the merchandise in organized retail chains and standalone stores. Viacom competes with Disney (NYSE:DIS) and Turner brands in India, where the market for kids toys and accessories is currently around $500 million. ^[5]

We estimate revenues of about $14.42 billion for Viacom in 2014, with EPS of $5.71, which is in line with the market consensus of $5.4-$5.71, compiled by Thomson Reuters. The company’s stock had declined close to 5% last week. We currently have a $91 price estimate for Viacom, which is more than 15% ahead of the current market price.

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1. Starz Reportedly Meets With 21st Century Fox About Potential Acquisition, The Hollywood Reporter, Sep 23, 2014 [↩]
2. Starz’s SEC Filings [↩]
3. 21st Century Fox’s SEC Filings [↩]
4. NBCUniversal Must Face MGM Claims of James Bond Knockoff, Bloomberg, Sep 25, 2014 [↩]
5. Viacom’s licence to merchandise growth, Business Standard, Sep 24, 2014 [↩]