Cox Deal A Boon For Discovery


Pali Capital media analyst Richard Greenfield initiated coverage of Discovery Holding Co. with a “buy” rating and a $25.50 per share 12-month price target, encouraged by new management and what he believes could be the eventual consolidation of Discovery Communications into DHC.

Discovery Communications named former NBC executive David Zaslav as CEO in November. His moves included naming a new management team, cutting costs and focusing on original programming.

On March 29, Discovery said it had bought out Cox Communications’ 25% interest in the network for $1.3 billion in cash and the Travel Channel, a deal that boosted Liberty Media’s interest in the network from 50% to 66%. Advance/Newhouse Communications’ stake in the channel rose from 25% to 33% as a result of the deal.

While it is still unclear as to whether Advance/Newhouse will consolidate its interest to DHC, Greenfield said the Cox transaction was a first step. The two-year anniversary of the formation of DHC — where Liberty contributed its then 50% stake in DCI — is in July, which could make a Newhouse transaction easier to swallow.

“If DCI is actually consolidated, it will create yet another catalyst for [Discovery Holding], as DCI management will finally be free to communicate with the investment community (something that has not been possible since the creation of DHC),” Greenfield wrote. “We believe greater transparency beyond quarterly filings will result in a substantial increase in investor attention paid to DHC.”