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AMC's Potential Starz Buyout Is Just The Beginning...

AMC's Potential Starz Buyout Is Just The Beginning...
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• FBR believes that the reported merger talks between AMC and Starz could serve to motivate Lions Gate to make an acquisition.
• FBR sees very little benefits to the potential deal other than scale.
• If completed, the deal could spark buyouts of other smaller names in the media space.

Following Tuesday’s Bloomberg story that AMC Networks Inc (NASDAQ: AMCX) is in talks to buy Starz (NASDAQ: STRZA), FBR & Co analyst Barton Crockett released a report outlining what a potential deal would mean for the two companies. In addition, Crockett names several other companies in the media space that could be making M&A headlines in the near future.

Ulterior Motive?

According to Crockett, the new talks between AMC and Starz might not end up getting farther than the merger talks that faltered last year.

FBR had expected Lions Gate Entertainment Corp (NYSE: LGF) to possibly make a move for Starz in early 2016. Under this assumption, a deal with AMC could either be opportunism on the part of AMC to act before Lions Gate does, or the talks could be an effort on the part of Starz to motivate Lions Gate to act sooner rather than later.

Potential Benefits

Assuming that the deal goes through, the new $9 billion company would create a sizable competitor for Netflix Inc (NASDAQ: NFLX) in the quality scripted drama genre. However, beyond scale, Crockett doesn’t see much benefit to the deal. “We don’t see much cost synergy, and revenue synergies would be hard to quantify,” he explains.

Other Names To Watch

Crockett believes that a completed AMC/Starz deal could lead to a flurry of M&A in the media space. FBR sees Scripps Networks Interactive Inc (NYSE: SNI), DreamWorks Animation SKG Inc (NASDAQ: DWA), Discovery Communications Inc (NASDAQ: DISCA) and Viacom Inc (NASDAQ: VIA) as the best potential buyout targets.

Disclosure: the author holds no position in the stocks mentioned.

Latest Ratings for AMCX

Jan 2018Morgan StanleyMaintainsEqual-WeightEqual-Weight
Jan 2018MacquarieDowngradesOutperformNeutral
Nov 2017JefferiesMaintainsHold

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