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Finance experts outline scenarios for the potential coming M&A merry-go-round.
By Georg Szalai
Global Business Editor
Kicking off the new year with a surprising move, Disney unveiled a deal to merge its multichannel streaming service Hulu + Live TV with its competitor Fubo TV, shaking up the streaming TV business. The news comes as many in Hollywood and on Wall Street are predicting a coming deal frenzy, following a 2024 drop in deal volume in the media-tech-telecom space, especially if the second administration of Donald Trump turns out to be as open to M&A as widely expected.
After Shari Redstone in July agreed to selling control of Paramount Global to a consortium led by Skydance Media, led by David Ellison, and RedBird Capital, Hollywood moguls are now gearing up for potential megamergers, with sector biggies Comcast/NBCUniversal and Warner Bros. Discovery (WBD) making moves to separate their cable networks units from their other operations and signaling that they are open to deal talks. Comcast will spin off its cable networks unit in 2025, while WBD will separate its networks from its other businesses, giving it the option for a later spin-off or merger.
“This is the best we’ve felt about the broader (media and entertainment) space since ’21,” Wells Fargo analyst Steven Cahall wrote in a recent report. “We expect M&A will support valuations in TV broadcast, Warner Bros. Discovery, and possibly Lionsgate, at least for a time.”
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Pivotal Research Group analyst Jeff Wlodarczak similarly told The Hollywood Reporter: “Big picture in the medium term I think you see more and more consolidation in traditional media. It really is the only answer to slowing down the melting ice cube of traditional media and trying to get enough content to be able to successfully go direct.”
Bank of America analyst Jessica Reif Ehrlich emphasized in a recent report that “it has long been our view that the media industry needs to undergo another wave of consolidation.” And she added: “It appears we are closer to the tipping point given the combination of secular and cyclical challenges along with recent announcements from Comcast to spin out their linear assets alongside WBD’s recent announcement to restructure their business. With a new administration coming in 2025, we anticipate a more favorable regulatory backdrop that could spur consolidation activity – across media and even potentially cable).”
Morgan Stanley analyst Benjamin Swinburne cautioned though in a Dec. 18, emphasizing that “M&A often takes longer to play out than the market expects.”
But with many industry folks eyeing a potential media merger merry-go-round as 2025 begins, THR is taking a look at some Wall Street analysts’ dealmaking ideas and scenarios.
Comcast has signaled it would want its cable networks spin-off to be a buyer rather than a seller, creating a possible roll-up vehicle for assets across the sector. “We believe Comcast SpinCo, which is likely to have low leverage, will serve as a rollup vehicle for other cable networks in the industry,” Reif Ehrlich recently wrote.
But the same could be true for WBD’s potential separation of its networks operation. It comes as no surprise then that some observers have suggested the two would make logical merger partners. “The new structure could facilitate various scenarios – from a full spinoff of the linear networks to potential combinations with other media entities, particularly NBCU’s upcoming cable network spin co,” TD Cowen analyst Doug Creutz recently noted. “WBD is a potentially attractive partner for Comcast SpinCo,” Reif Ehrlich noted. “Given the scale and size of WBD’s cable networks … we view WBD as a logical counterpart for Comcast’s SpinCo rollup.”
That said, don’t expect immediate deal announcements once the unveiled organizational changes come into effect during 2025. “No M&A dance is imminent,” MoffettNathanson analysts Craig Moffett and Michael Nathanson highlighted in a Dec. 3 Comcast report. “Tax law requires that no transaction be even seriously contemplated in advance lest the tax-free nature of the spin be compromised. SpinCo
will have to have an organic business plan and media executives will likely have to wait until at least 2026 for SpinCo to be a true free agent.”
About potential deal partners for the Comcast cable networks business, the analysts said: “We think both WBD and Paramount Global would evaluate selling off their cable networks for the right price. We still think Warner Bros. Discovery’s large cable portfolio would make the most natural dancing partner for SpinCo, by a significant margin.”
FBN Securities analyst Robert Routh forecasts a similar future but also alternative options for WBD’s cable channels, telling THR: “Warner Bros, Discovery will split into two separate entities and subsequently look to merge with the NBCU spin company or AMC Networks.”
And Wells Fargo analyst Steven Cahall, in a Dec. 19 report, highlighted a slew of cable channels deal options ahead, writing: “Comcast’s cable SpinCo offers merger options for WBD/AMC Networks/Starz, which could result in a $20 billion equity roll-up.”
Reif Ehrlich echoed that networks M&A dominoes could start falling across the sector. “We anticipate other media companies will consider parting with some of their cable TV network assets now which could drive an effective industry roll up vehicle,” she wrote. “These assets should be better positioned as a consolidated, linear-focused vehicle with scale benefits that can drive affiliate and advertising negotiation as well as synergies.”
DC Comics, thanks to its superhero characters, is seen as one of the crown jewels of Hollywood giant WBD, giving it intellectual property that it can use to create film and TV projects.
The unit celebrated a creative comeback of its comics offerings in 2024. And filmmaker James Gunn and producer Peter Safran, who lead DC’s film, TV and animation efforts as co-chairs and co-CEOs of DC Studios, continued to develop their slate.
While most on Wall Street see DC as a core part of the conglomerate, FBN’s Routh sees an option ahead to boost the market value investors assign to it. “Warner Brothers Discovery will consider taking DC Comics public as the valuation it would get is likely much higher than what is currently reflected in the public equity,” he tells THR.
Entering 2024, talk of bundling streaming services akin to traditional pay-TV bundles was all the rage. But industry experts have long also argued that the streaming space could end up consolidating to create a handful of big streamers.
“There is room for consolidation of sub-scale direct-to-consumer (DTC) platforms,” Reif Ehrlich recently argued. “As we look at the streaming ecosystem, we anticipate there will likely be consolidation among sub-scale platforms in an attempt to compete with the biggest players in the market. We have long discussed an impending ‘rebundling’ in media, as the current streaming market is oversaturated and ripe for consolidation. In order to be an effective global streamer, scale is needed.”
She described her take on the current streaming landscape this way: “There are currently around eight platforms which could be considered mass market, while most in the industry assume consumers are willing to pay for three to four subscriptions,” Reif Ehrlich wrote. “Given the number of users and engagement data, we believe (NBCU’s) Peacock, (WBD’s) Max and (Paramount’s) Paramount+ could be good candidates for partnerships and/or consolidation. In addition to increasing the subscriber base, consolidation has the potential to strengthen the content offering and reduce marketing cost as well as churn.”
Some have in the past mentioned Lionsgate assets as an interesting target for streaming giants looking to expand their libraries. “Lionsgate and Lionsgate Studios after (their) separation will likely both become part of larger organizations,” Routh told THR. “Here we see the new media entities, possibly Apple or Meta, look to acquire the IP the company owns to leverage across their respective platforms.”
A long-anticipated satellite TV mega-merger of DirecTV and Charlie Ergen’s EchoStar was unveiled in late September before the former abandoned it two months later amid opposition from bondholders. But never say never when it comes to this often-discussed deal option.
In the meantime, talk of giant cable mergers, including the likes of Charter Communications, which has agreed to take over John Malone’s Liberty Broadband, has popped up on Wall Street as of late. “Can cable companies combine?” Reif Ehrlich asked in a recent note. “Large-scale cable mergers, such as Comcast and Charter, which was attempted years ago and has seen renewed press speculation in recent months, likely would still face an uphill battle to get governmental approval. However, with the incoming administration focused on reducing regulation and seemingly more open to enabling M&A, there may be a window of opportunity to attempt a merger. A merger between Comcast and Charter would essentially create a national broadband footprint, significantly increase scale and drive sizable synergies and efficiencies.”
Concluded the veteran analyst: “While large-scale mergers may still prove difficult, smaller acquisitions (e.g. Comcast and Cox) in the sector have historically had an easier time receiving government approval, and we anticipate incremental cable consolidation over the next few years.”
Routh even sees telecom giant AT&T as a potential buyer. “AT&T in an attempt to gain fiber will consider acquiring Liberty Broadband and Charter Communications unless Comcast is able to merge with Charter first under the new administration,” he shared with THR in outlining a possible 2025 deal scenario.
Amid all the talk of deregulation during Trump’s second White House tenure, local broadcasting rules are seen as one likely focus. It comes as no surprise then that some in the industry and on the Street foresee sector M&A as a result, either before or after political changes.
“The incoming Trump administration and Trump pick Brendan Carr heading the FCC is likely to usher in deregulation and consolidation for TV broadcast,” Cahall predicted in a recent report. “We think the new FCC will pursue much-needed broadcast deregulation, which could include eliminating the ownership cap. We like Tegna on M&A.”
He is not alone. “The regulations on local TV broadcasters will be revamped, leading to material increases in the equity values of Sinclair, Nexstar and Tegna among others,” Routh told THR. “It should also lead to numerous deals.”
Cahall thinks “M&A could come back quickly.” He likes Tegna because of a past attempt to buy it. “Standard General offered $24 per share for Tegna in February ’22,” he noted. “While we think M&A valuations could be modestly lower in the future broadcast consolidation cycle, Tegna also has fewer shares and less debt” now than back then.
He has a new stock price target of $23 on Tegna, highlighting that this “equates to 13 percent upside, and if there are multiple bidders it could go higher.” Cahall concluded: “If no deal emerges for Tegna, it could become a buyer or a merger partner with other station groups.”
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