Cast of Mad Men
The company owns four national networks: AMC, WE tv, IFC, and the Sundance Channel. The company earns its cash through direct advertising and affiliate fees. Advertising is the old business of selling ad spots and affiliate fees are paid by the cable operators on a per subscriber basis. 57% of AMC Networks revenue comes from affiliate fees and 37% is earned through advertising. Affiliate fees are longer-term in nature while advertising fees are shorter-term and very cyclical.
Since 2006 AMC Networks has grown revenue at a 10% compound annual growth rate. 2010 revenue came in at $1.1 billion. This corresponds to an EBITDA of $407 million.
AMC Networks is looking to build their revenue base with expansion of their networks into foreign countries. AMC Networks is also changing IFC into an advertiser supported model like they did with AMC and WE tv and they are adjusting the programming mix too.
AMC Networks is a unique asset so it is hard to value the spin-off on a relative basis to other companies within its industry. The closest business would be Discovery Communications (DISCA). Currently, Discovery Communications trades at 10.7 x EBITDA ttm the same 10x multiple would give AMC Networks a $4.07 billion market capitalization which is about $56 per share.
AMC Networks currently trades at $37 per share.
Potential Buyout Candidate
According to Bloomberg, AMC Networks is an attractive asset for companies like News Corp (NWSA) and Disney (DIS).
AMC Networks Inc., the cable-television channel owner spun off last week from Cablevision Systems Corp. (CVC), may lure buyers from News Corp. to Disney and Time Warner Inc. (TWX), according to Gamco Investors Inc…
“AMC would be a very attractive asset for a number of larger media companies,” said Chris Marangi, a fund manager at Rye, New York-based Gamco, which oversees $35 billion and about 4 million AMC shares. “AMC is a hot network, and there are a lot of companies looking for more cable network exposure because they like the predictable, recurring dual-revenue streams of advertising and subscription fees.”
- Mad Men Make AMC Priciest Media Takeover Since 2006: Real M&A by Alex Sherman & Tara Lachapelle
The first roadblock to an acquisition of AMC Networks is its valuation. AMC networks may trade at a discount to comparable multiples of EBITDA but it currently trades around a PE of 26 based on Pro Forma earnings. It also will have $2.43 billion in new debt from the spin-off transaction. An above average valuation and debt hasn’t stopped an acquirer before but the major roadblock is the Dolan Family.
The Dolan family was issued 13.5 million super-voting class B shares. This gives them 70% of the voting power and any potential acquirer will need to woo the Dolan family.
The recent sell-off in AMC Networks’ stock after the spin-off makes this event driven investment more attractive.
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