Yesterday after the close of trading Judge Richard Leon gave the go-ahead to AT&T’s (T) acquisition of Time Warner, the owner of HBO and other content. The ruling is a green light to other vertical mergers in the media sector. The judge rejected the government’s attempt to block the deal. The Trump administration made a very traditional argument  that the merger would stifle competition and lead to higher cable bills–which it almost undoubtedly will. But the judge sided with AT&T’s assertion that it had to grow to survive against the competition posed by Amazon, Netflix, and Google.
The ruling, then, is a blue print for a wave of vertical media mergers in which distribution companies, such as cable operators, buy up content creators.
The ruling was barely out of the judge’s printer before Comcast (CMCSA) made a $65 billion bid for the media assets (TV and movie studios) of 21st Century (FOXA.) Comcast’s offer is about 20% higher than an earlier bid from Walt Disney (DIS.) Comcast’s offer is also an all-cash deal versus Disney’w all-stock package. Wall Street bid up Fox today and clearly anticipates a bidding war for these assets.
But with the media merger genie out of the bottle, these Fox assets aren’t the only media assets in play. If everyone needs to get bigger to compete with the Amazons and Netflix’s of the world, then everyone has to do a content deal or get left behind and there are only just so many content assets to buy.
My pick–in fact this is going into the Jubak Picks Portfolio tomorrow is Lionsgate Entertainment (LGF-A and LGF-B.) I’ll be buying the “A” shares since they’re the ones that count–the “B” shares are non-voting shares.
Lionsgate owns a library of 16,000 TV shows and films that includes La La Land and The Hunger Games.
Pressure is on Disney to make a buy since the content rich company doesn’t want to become a target itself. So I’d expect a bidding war for the Fox assets with the loser looking around to quickly make a new deal.
A shares of Lionsgate Entertainment closed up 3.07% today at $24.86. I’d set a target price of $29 on the shares.
