Yahoo Finance Porter Bibb: AT&T is getting Time Warner for a bargain at $85 billion
A veteran media analyst calls AT&T’s $85 billion buyout of Time Warner the first “millennial merger.”
Porter Bibb, a managing partner at MediaTech Capital tells me in the video above, “This deal is being driven by the rush of the under 40s to mobile.”
He says the deal shows that AT&T is ahead of the competition in understanding that mobile will soon be the dominant player when it comes to consuming news, entertainment and information.
Bibb believes regulators will ultimately sign-off on the mega merger because it is a marriage between two “vertical” companies, meaning that AT&T and Time Warner are not head-to-head competitors.
He believes the public stands to benefit from the hookup, but says that’s not the case for cable companies.
“Comcast, Charter Communications, Time Warner Cable, they will be diminished by the transition from linear TV and cable to mobile and digital distribution,” he says.
The merger values Time Warner at 22 times the cash it generated from operations, and it’s stock (TWX) is trading about $20 a share below the buyout price of $107.40 a share. Still, on a price-to-earnings basis, Bibb believes AT&T is getting a bargain.
“The deal values Time Warner at 17 times its present PE ratio—the same as every other major media company, including CBS, Viacom, and Disney,” he points out.
Bibb thinks Time Warner would have been an attractive takeover target for a private equity firm because it’s a cash-flow generator with very little capital expense. But he doesn’t believe any private equity firm will enter the fray now to compete with AT&T.
HBO, home of the popular series “Game of Thrones,” has been touted as the crown jewel of Time Warner, and Bibb says he wouldn’t be surprised if AT&T spins off at least part of the cable network into a publicly-traded company.
“Let 20% of it go public,” Bibb recommends. “HBO has five times the profit of Netflix, it owns its own content—which Netflix does not—and it has more subscribers than Netflix.”
Bibb believes the valuation of HBO as a standalone public company would be much greater than all of Time Warner.
