Meet the Street: Deregulation's Effects on Broadcasters
Following a federal court decision earlier this week that could allow greater consolidation in the broadcast and cable industries, the stage could be set for a new wave of mergers and acquisitions. But as long as some of the largest companies' stocks remain at depressed levels, don't expect any big deals yet.
Recent Meet the Streets
Charles W. Mulford
That's the take from George Nichols, a Morningstar analyst who specializes in media stocks, on the federal appeals court ruling announced Tuesday. The decision potentially would allow a single media company to reach as many as 50% of television households in the U.S., vs. the current 35% limit.
The ruling, if not overturned by the Supreme Court, also would allow a media company to own both a cable channel and a broadcast station in a single market. Viewer-rights advocates already have voiced concerns about a possible reduction in choices, but Nichols believes that even in such a scenario, consumers still would have many stations to choose from.Although consolidation may be around the corner, Nichols doesn't expect much activity soon. According to him, stock prices for the major media companies need to rise in value before there will be any deals sweet enough for a takeover target to embrace. TSC: Do you expect this week's ruling to lead to many mergers and acquisitions among broadcast and cable companies, and if so, what kinds of companies do you think will be most sought? Nichols: First of all, the media industry has historically been a mergers and acquisitions factory. This hastens the consolidation trend. It's hard to predict exactly what will happen, but broadcasters like Paxson (PAX) or Sinclair (SBGI) could have suitors banging at their door. Mid- to large-size companies like the Tribune Company (TRB) are also interesting because they could either snap up affiliate stations, or be bought out by a media conglomerate like an AOL (AOL). And there are other players in the game, like a Gannett (GCI) or McGraw-Hill (MHP). It's more likely these companies will be buyers than get bought out themselves. In fact, on the last conference call, Gannett management said they would be on the lookout for strategic acquisitions, although they did make a point of saying that
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