AMC Networks’ Surging Valuation May Prompt Sale

With AMC Networks Inc.’s ability to persuade cable- and satellite-TV companies to carry its channels under threat, there’s never been a better time for the controlling Dolan family to sell the business.

AMC owns four channels, including a namesake brand that airs “Mad Men” and “The Walking Dead,” the top-rated U.S. drama in the most-coveted demographic. Dish Network Corp. dropped the networks for almost four months in 2012, and Time Warner Cable Inc. Chief Executive Officer Glenn Britt has said inclusion in channel lineups isn’t a “birthright.” Faced with the possibility AMC’s reach may shrink, analysts see its shares slumping 1 percent in the next year, according to data compiled by Bloomberg.

Bundled with the multitude of higher-rated channels owned by a larger media company, AMC’s properties might stand a better shot in fee negotiations with distributors. Comcast Corp., News Corp. and CBS Corp. are likely buyers due to AMC’s record of developing hit shows, BTIG LLC said. Comcast, which is acquiring the rest of NBC Universal, would be interested in AMC at the right price, according to a person familiar with the matter. The second-highest price-earnings ratio among peers means the time for AMC’s owners to sell is now, CRT Capital Group LLC said.

“The Dolan family realizes that AMC’s value is peaking,” Lance Vitanza, a Stamford, Connecticut-based analyst at CRT Capital, said in a telephone interview. “If I’m Jimmy Dolan, there’s never been a better time for me to sell AMC Networks.”

Dolan Family

Jim Dolan is the CEO of Cablevision Systems Corp., which spun off AMC in 2011. The Dolan family still controls the voting rights for the $4.2 billion company, and Jim Dolan is a board member along with his father, AMC Chairman Charles Dolan.

Georgia Juvelis, a spokeswoman for New York-based AMC, said the company doesn’t comment on speculation. John Demming, a spokesman for Philadelphia-based Comcast, also declined to comment, as did News Corp.’s Nathaniel Brown and CBS’s Dana McClintock. The latter two companies are based in New York.

Besides its namesake channel, AMC owns IFC, which features movies and original TV programs; the Sundance Channel, which airs independent films; and the female-focused WE tv. Its biggest ratings success is “The Walking Dead,” a zombie series that had 12.3 million total viewers for its Feb. 10 midseason premiere, according to data compiled by Nielsen Holdings NV. The show has averaged 6.8 million viewers in the 18-to-49 demographic this season, the highest of any drama.

Series Ending

AMC also airs “Breaking Bad,” which concludes this year, and “Mad Men,” which has two more seasons, with the next one starting in April. The impending conclusions of those two shows may spur a deal, Vitanza said.

While AMC owns “The Walking Dead” and can profit from online downloads, DVDs and syndication, it doesn’t have the same control over “Mad Men” and “Breaking Bad.” Lions Gate Entertainment Corp. of Santa Monica, California, owns and produces “Man Men,” while “Breaking Bad” belongs to Tokyo-based Sony Corp.

Shares of AMC surged 31 percent through yesterday to a record $59.76 since the distribution dispute with Dish was resolved in October, bringing their gain since trading began in June 2011 to 68 percent. Today, the stock lost 0.5 percent.

The stock fetched 28.6 times reported profit as of yesterday, the second-highest valuation among U.S. broadcasting and entertainment companies trading for more than $1 billion, data compiled by Bloomberg show. Its enterprise value was 13.4 times earnings before interest, taxes, depreciation and amortization, compared with 11.5 at News Corp. and 9.4 at CBS.

Downside Risk

At this valuation, “the risks are more to the downside,” Vitanza said.

Comcast, News Corp. and CBS are all possible buyers of AMC, said Rich Greenfield, a New York-based analyst at BTIG. Comcast would be interested at the right price even after agreeing this week to buy out General Electric Co.’s NBC Universal stake for $16.7 billion, said a person familiar with Comcast’s plans, who asked not to be named because the matter is private. NBC Universal’s cable properties include USA Networks, MSNBC and Bravo.

Even though a buyer may not gain long-term benefits from “Mad Men” and “Breaking Bad,” AMC’s success cultivating those series proves the value of the company, Greenfield said. Both programs and their actors have won accolades including Emmy awards and Golden Globes.

“Lots of companies would love to have a network with a strong brand for iconic programming,” Greenfield said in a phone interview. “Hits beget hits. Deeper programming money would lead to huge opportunities.”

Low Ratings

The success of “The Walking Dead” hasn’t translated into a broad audience for all of AMC’s properties. AMC was the 14th-most-watched cable channel during prime time this year as of Feb. 10, data compiled by Nielsen show. IFC and WE tv weren’t among the top 35, and Sundance wasn’t rated.

A buyer of the parent company could completely redo the lower-rated channels, using the existing distribution agreements to help guarantee delivery of the new programming. Al Jazeera did just that this year, buying Current TV with a plan to convert it into an American affiliate of the Qatar-based news channel.

A larger buyer would also have the opportunity to boost the rate AMC charges for channels, Greenfield said. The channel known as AMC brings in 29 cents a month on average for each of the 99.6 million people who have access to it, according to estimates for 2013 from SNL Kagan. IFC, Sundance and WE tv charge 21 cents, 16 cents, and 12 cents, respectively. That compares with 51 cents for News Corp.’s FX Network, 64 cents for Comcast’s USA Network, and $5.51 for Walt Disney Co.’s ESPN.

Negotiating Leverage

AMC’s fees lag behind in part because it’s locked into contracts with pay-TV providers that were signed before ratings for “The Walking Dead” soared, Greenfield said.

An acquisition would be appealing for Comcast, which is also the biggest U.S. cable company, or News Corp. because they’ll be able to guarantee the channels get distribution by tying them to their more popular networks when contracts are renewed, said Gamco Investors Inc.’s Chris Marangi. The investment firm, which has $36 billion in assets, owns more than 4 million AMC shares.

Time Warner Cable, the second-largest U.S. cable operator, hasn’t re-signed WE tv and IFC to a new deal, according to a person familiar with the negotiations, who asked not to be identified because the talks are private. Both are in jeopardy of being dropped if a deal isn’t reached, the person said.

“There are meaningful synergies to being a part of a larger network group,” Marangi, a Rye, New York-based money manager, said in a phone interview. “You could see a deal.”

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