Disney said there is no truth to speculation by a stock analyst that it might sell its 10 ABC-owned TV stations if it continues to unload distribution assets to invest in content, such as Disney’s acquisitions of Pixar Animation Studios and kids’ online virtual world Club Penguin.
“The 10 O&Os [owned-and-operated stations] are the last bastion of distribution-oriented assets Disney has left, for which they receive no credit in their stock price,” said an investment research note from Caris & Co. “Should we be correct and management invite a transaction, Disney could eventually become the only traditional, large-cap media name that is virtually 100% asset-weighted toward pure content.”
The nine-page investment research note dated Wednesday estimated that Disney would “hypothetically” get $4.8 billion for its broadcast-TV stations in New York, Los Angeles, Chicago and seven other big cities. That applied an earnings multiple of 11 to the $440 million of trailing EBITDA (earnings before interest, taxes, debt and amortization) cash flow generated by ABC stations, although other stock analysts have been lowering valuations to 10 and 9 multiples, which would result in a lower price tag.
David Miller, who wrote the Caris report, said Friday that his job is to anticipate corporate moves, adding that his note on Disney O&Os was not based on industry buzz, but rather extrapolating Disney’s current strategic thinking. He noted that Disney already shed its radio-stations business.
Disney is a leading owner of basic-cable networks, including ESPN, which the Caris report did not see being unloaded.
There is no precedent for a major broadcast network operating without a foundation of O&O TV stations as an anchor in major cities, but there is no regulatory obstacle. The Caris report said Disney would simply require buyers of its O&O stations to maintain ABC network affiliation.
In recent years, network broadcasters have been selling some of their TV stations, shrinking their O&O groups, although not in the biggest cities.
For example, NBC Universal is selling Miami NBC outlet WTVJ to Post-Newsweek Stations. And private-equity investor Oak Hill Capital Partners bought eight Fox O&Os for $1.1 billion earlier this year.
In a May appearance at an investors' conference, Disney president and CEO Bob Iger -- himself an ABC alum -- said the broadcasting business itself isn’t attractive, but it becomes important when feeding content to Disney’s TV-program-production/distribution business in Hollywood.
“If we were not in the studio business in this day and age, it would be pretty challenging” to be in that network business, Iger told the 2008 Bernstein Strategic Decisions Conference. At that time, he added that the O&O stations’ earnings outlook was “solid.”