AMC Networks (AMCX) is being sued by four current and former producers behind the mega hit zombie show "The Walking Dead," but the negative story is unlikely to have an impact on its attractiveness as a potential takeover target.
Three of the show's current producers and one former executive producer filed a lawsuit against AMC Networks on August 14. The group claims that AMC Networks didn't pay them what they deserved based on the success of the show. "Plaintiffs and the other talent behind [The Walking Dead] are the ones whose work to create, develop, write and produce the series has brought its huge success, but the fruits of that success have not been shared as they should be," the complaint reads.
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The lawsuit came just three days after one of the plaintiffs, Robert Kirkman, left AMC Networks for a two-year deal with Amazon's (AMZN) Prime Video platform, where he will develop original TV programs. The suit also comes four years after former executive producer Frank Darabont filed a similar lawsuit claiming that AMC Networks owed him about $300 million.
AMC Networks' stock did not have a noticeable reaction to the lawsuit. The company's shares are trading up 16% year-to-date to $60.69 vs. the S&P 500's 9% increase for the year. That's likely because AMC Networks is one of a handful of small cable companies with attractive offerings, such as IFC and WEtv, that has yet to be bought out. Most recently, Discovery Communications Inc. (DISCA) announced on July 31 that it had agreed to buy Scripps Network Interactive Inc. (SNI) for $90 share in a deal valued at $11.9 billion.
However, AMC Networks is actually trading at a discount to the market, with a trailing price-to-earnings ratio of 9.7, vs. the S&P 500's P/E of 21. In the past year, AMC Networks' P/E has dropped as low as 8.3 in October.
AMC appears to be taking the lawsuit in stride, arguing that this type of lawsuit is common in the industry. AMC sent the following statement to TheStreet: "These kinds of lawsuits are fairly common in entertainment and they all have one thing in common -- they follow success. Virtually every studio that has had a successful show has been the target of litigation like this, and 'The Walking Dead' has been the #1 show on television for five years in a row, so this is no surprise. We have enormous respect and appreciation for these plaintiffs, and we will continue to work with them as partners, even as we vigorously defend against this baseless and predictably opportunistic lawsuit."
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