Weekly Media Notes: Mayweather-Pacquiao, M&A And More

+61.08%
Upside
27.00
Market
43.49
Trefis
FOX: Fox Corp logo
FOX
Fox Corp

The media industry saw significant activity last week, with 21st Century Fox denying the rumors about a takeover of Discovery Communications. In other news, a hedge fund proposed that CBS should spin out its radio stations business and merge it with Columbus Media. In yet another, HBO and Showtime team up for Mayweather and Pacquiao fight in a historic boxing event scheduled on May 2nd. On that note, we discuss below these developments related to the media companies over the last week or so.

21st Century Fox

Relevant Articles
  1. Fox Stock Rallied 6% Last Week – What Should You Know?
  2. Fox Beats Q4 Estimates On The Back Of Gains In Cable Networks, Studio Performance
  3. U.S. Department of Justice Approves Disney-Fox Deal
  4. What Would A Potential Comcast-Fox Combination Look Like?
  5. How Much Could Comcast Benefit From Acquiring Fox’s Studio Business? 
  6. Why We Revised Our Price Estimate For Fox To $43

21st Century Fox (NASDAQ:FOX) has denied any takeover discussions with Discovery Communications, owner of Discovery Channel, TLC and Animal Planet. [1] Discovery Communications has a market capitalization of close to $14 billion and a merger with Fox would have created a media giant with a pro forma market cap of over $90 billion. Fox tried to acquire Time Warner last year but Time Warner rejected the offer and Fox has laid low since then. On a separate note, Warren Buffet’s Berkshire Hathaway is bullish on Fox’s media operations and it recently picked up 4.7 million shares valued at $181 million. [2]

We forecast revenues of around $30 billion for Fox in 2015 and EPS of $1.69, which is in line with the market consensus of $1.70, compiled by Thomson Reuters. We currently have a $39 price estimate for 21st Century Fox’s shares, which is around 15% ahead of the current market price.

CBS Corporation

CBS Corporation (NYSE:CBS) owns 117 radio stations in 26 U.S. markets. Hedge fund Sandell Asset Management has proposed that CBS should spin out its radio business and merge it with Columbus Media in a reverse Morris Trust merger. [3] It should be noted that CBS’ radio revenues have been growing at a much slower pace than the company’s overall growth (2% vs 5% in the recent quarter). However, the company’s management has always been vocal about the steady cash flows the radio business provides to the media giant. It will be interesting to see how this story develops in the coming months.

We estimate revenues of about $14 billion for CBS Corporation in 2015 with EPS of $3.10, which is lower than the market consensus of  $3.60 compiled by Thomson Reuters. We currently have a $52 price estimate for CBS Corporation, which we will soon update to incorporate the latest quarterly results.

Time Warner

Time Warner’s (NYSE:TWX) HBO and CBS’ Showtime have exclusive rights to the Pacquiao-Mayweather boxing event. Both networks are coming together to cover the event, which is termed the “fight of the century.” The fight will be on May 2nd and the pay per view price tag could be more than $100. [4] It is going to be a massive event and is expected to gross over $400 million. Given the huge demand for this event, evident from ticket sales, which were sold out in first 15 minutes of opening, the networks could benefit massively. To put this in perspective, the highest grossing pay-per-view boxing match so far was the 2013 match between Mayweather and Saul Alvarez. Showtime garnered around $150 million from 2.2 million pay per view units sold. [5] Given the size of this event, assuming that the networks charge $100 per unit and viewers are around 2.5 million, it will translate into revenues north of $250 million.

We estimate revenues of about $29 billion for Time Warner in 2015 with EPS of $4.56. We currently have an $83 price estimate for Time Warner, which we will soon update to incorporate the latest quarterly results.

View Interactive Institutional Research (Powered by Trefis):

Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap
More Trefis Research

Notes:
  1. 21st Century Fox denies Discovery Communications takeover talks, The Sydney Morning Herald, Feb 23, 2015 []
  2. Warren Buffett Invests in 21st Century Fox, Variety, Feb 17, 2015 []
  3. CBS under pressure from Sandell over combination with Cumulus, The Deal Pipeline, Feb 23, 2015 []
  4. Finally, Mayweather and Pacquiao will fight, Campus Times, Feb 26th 2015 []
  5. Floyd Mayweather and Canelo Alvarez PPV sales at 2.2 million, setting revenue record, Yahoo Sports, Sep 19, 2013 []