Media Stocks Show Solid Liquidity, Though Deals Are a Risk
Good news for media and entertainment stocks: Fitch Ratings agency says the sector is generally healthy, with plenty of free cash flow and cash on the balance sheet. Fitch reports the major conglomerates, including Disney (DIS), News Corp (NWS), Viacom (VIA), and Time Warner (TWX) are best positioned to weather the economic downturn because of the fact that they're diversified beyond their exposure to the advertising markets, and they have plenty of cash and access to credit.
These media giants also aren't particularly exposed to Lehman Brothers, nor will the consolidation in the rest of the banking space affect them much. The media sector is even immune to the tightening of the commercial paper market, as these companies aren't major issuers.
The bad news: big deals the media giants have been working on are going to be put on hold thanks to the economic environment. Buyers are risk averse, credit markets are incredibly tight, and sellers don't have leverage, or any sort of upper hand to demand higher prices. There's the immediate issue that everything is in flux, and nothing will happen until the bailout/rescue bill is approved in Congress. But even in the near future beyond that some major deals could be facing higher hurdles.
Some pending deals that could face challenges. Just last week CBS (CBS) began an auction to sell 50 radio stations, before the bailout battle got into full swing. No update on the auction yet, but CBS's stock has been hurting. Cablevision Systems (CVC) has talked about selling some of the assets at its Rainbow Media division, but as of the Goldman Sachs Communicopia conference a few weeks ago, the company's CEO James Dolan said the economic situation made this kind of sale unlikely.
Time Warner has been looking to sell its dial-up Internet unit, and potential buyers include Yahoo (YHOO) and Microsoft (MSFT). There's also been talk of Time Warner partnering with Yahoo for co-ownership of the division, which could circumvent that credit crunch issue. We'll see if in this environment parts of the media sector seem like sure-thing safe havens, perhaps for private equity investors?
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