Newly minted shares of Starz had a boffo market debut, surging nearly 10% Monday — the channel’s first day of trading as an independent public company and likely takeover target. Its emergence, promised one Wall Streeter, “should lead to increased focus on the potential implication of M&A activity in the sector.”
The pay TV network, which split from parent Liberty Media late last week, ended the session up an impressive 9.8% at $15.59. Liberty chairman John Malone had touted the separation, announced months ago, as a way to provide Starz with strategic opportunities and a higher profile with investors, and for Liberty to conserve some cash.
Alone, it’s likely to be acquired or partner with another media company. In a note Monday, Susquehana Financial analyst Vasily Karasyov outlined a handful of potential targets out there now, with Starz high on the list. “All of the large-cap players in the space, as well as MVPDs (multi-channel video programming distributors) will be considered potential buyers unless proven otherwise, and maybe after that, too,” he said.
He noted that programmers have an ever-increasing need for leverage versus cable and satellite operators. The relative attractiveness of a deal depends on potential for new revenue. “Affiliate revenue synergies would come from rate increases and/or wider distribution, which implies that the acquired networks should be either under-distributed or under-monetized,” he said.
Starz has 21 million subscribers and output deals with Sony and Walt Disney. The Mouse plans to switch to Netflix when its deal expires in 2016. Sony hasn’t reupped anywhere yet. The media biz is flush with cash right now but it gets harder to pinpoint Starz buyers among the biggest players after eliminating ones who’ve committed studio fare to other pay outlets for the foreseeable future, or own their own payboxes. News Corp.’s Fox and Comcast’s Universal are tied to Time Warner’s HBO. CBS owns Showtime.
Karasyov sees Discovery Communications as a possible buyer of assets, which he thinks could now include, along with Starz, AMC Networks and MGM, along with three perennial targets, Lionsgate, DreamWorks Animation and Scripps Networks.