Is Travel Channel worth up to $900 million?

Are cable channel multiples going through the roof again? Reports out today suggest that News Corp’s bid for Cox Communications’ Travel Channel is in the region of between $800 million and $900 million dollars. Pali Capital’s Richard Greenfield estimates that if Travel’s pre-tax earnings (EBITDA) are around $50 million in 2009, that would translate as a multiple of 17 times earnings. Media conglomerates, by comparison, trade at around a 7 times multiple while pure plays like Discovery and Scripps Networks are at 11. If the NBC Universal deal is made for around $30 billion, analysts are assigning a multiple of 12. We’re a long way from the glory days of The Weather Channel which sold for $3.5 billion in 2008 or a multiple of 20, but the industry’s thirst for cable assets appears hard to slake and will likely push up valuations.We’re not suggesting News Corp. management has lost its marbles. There are plenty of reasons why Travel Channel would be worth more to News Corp. than it would be to Scripps Networks Interactive which is also in the running. News Corp. has more negotiating clout with the cable operators and is better positioned to take The Travel Channel global. Greenfield writes, “Assuming someone pays a multiple anywhere near our estimates or above, it highlights the continued value of cable networks albeit, Travel Channel’s full-distribution, rather meager profitability and lack of international presence makes it a somewhat unique asset (not to mention it’s a standalone asset).”