Once the shock wore off that the Justice Department could derail AT&T’s acquisition of Time Warner by demanding significant asset divestitures, Wall Street analysts started taking out their pencils to weight AT&T’s options and the value of Time Warner’s businesses.
Related: AT&T CFO Says Timing of Time Warner Approval ‘Now Uncertain’
While AT&T has indicated it is not interested in selling assets, particularly CNN, analysts nonetheless seemed to think that selling the news network would be the least unattractive way to get a deal done.
Marci Ryvicker, analyst at Wells Fargo, said in a research note that of the assets the DOJ was asking AT&T to divest, “the obvious choice is CNN.” She notes that “there are not potential buyers for DirecTV,” an alternative asset that could be sold to satisfy the government.
Ryvicker calculates that CNN is worth between $8 billion and $10 billion, based on SNL Kagan’s estimate that CNN generates EBITDA of $665 million and assuming a 1-15 time multiple.
“If AT&T had to pick something based on financial considerations . . . we believe the financial impact of selling CNN would be lower than other potential options,” agreed Kannan Venkateshwar of Barclays.
“One could argue that owning a strategic news asset is certainly valuable, particularly given AT&T's move to capitalize on mobile content,” Venkateshwar added, but at $600-700 million in EBITDA, divesting it wouldn’t change the “strategic logic or economics” of acquiring Time Warner and its $8.8 billion in EBITDA.
AT&T wouldn’t want to lose all of Time Warner’s Turner, which would result in the loss of sports rights. Turner is also a big generator of cash compared with HBO and Warner Bros, which require more working capital,” he said.
If Time Warner went back on the block, who might be a buyer? In theory, Disney is in the market looking to acquire media assets,” Venkateshwar said. Time Warner has also seen interest from tech companies like Apple. If the government make media consolidation difficult, tech companies “in theory could increase competition in the distribution market by acquiring media companies.”
Rich Greenfield of BTIG had his own list of potential buyers for Time Warner, should the AT&T deal fall through.
He had Fox, Disney, Comcast and Verizon on his list, along with tech platforms such as Apple, Amazon, Google and Facebook.
“We doubt any of those four [tech companies] are likely to want to allocate this much capital to the media business versus simply building from scratch without the legacy baggage that comes from acquiring a company such as Time Warner,” Greenfield said.