Why Trump May Have Given CBS A Reason To Look At Buying New TV Stations

Backdrop

The FCC has a cap on TV and radio stations a single entity can own. Specifically, there is no limit on the actual number of stations an entity can own nationwide so long as the station group collectively reaches no more than 39 percent of all U.S. TV households.

CBS Eying M&A

David Miller of Loop Capital Markets commented in a research report that Pai is likely to modernize the "antiquated" 39.0 percent rule to 49 percent, which means several TV stations are in the market for an acquisition.

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Miller noted that CBS Corporation CBS's CEO Les Moonves even stated himself that CBS would be in the market to acquire new properties if the rule is shifted so the analyst took a deep dive into what may come.

CBS currently operates 27 stations with 10 duopolies but would prefer to own more so long as the acquired assets are located within AFC football markets. These top four markets include the CBS affiliate in Houston TGNA, Cleveland (owned by Raycom — private), Sand Diego (owned by Midwest Television — private) and Indianapolis TRCO).

The analyst continued that based on his calculations, adding these four stations to CBS's portfolio would increase its household reach by 12.6 million households, or an incremental 10 percent of all households. Moreover, Miller suggested the price tag on acquired all four stations could be as high as $165 million, which CBS could "easily" pay for.

Finally, Miller noted that while CBS does not reveal the expiration date of the affiliation agreements in these four markets his best guess is that the agreement will be up for renewal in the next 18 to 36 months and any action could be taken at that time.

Shares of CBS remain Buy rated with a $76 price target.