Wall Street Looks at Options for Time Warner Assets

Despite AT&T's reservations, analysts see selling CNN as best bet

Once the shock wore off that the Justice Department could derail AT&T’s acquisition of Time Warner by demanding significant asset divestitures, Wall Street analysts started taking out their pencils to weight AT&T’s options and the value of Time Warner’s businesses.

Related: AT&T CFO Says Timing of Time Warner Approval ‘Now Uncertain’

While AT&T has indicated it is not interested in selling assets, particularly CNN, analysts nonetheless seemed to think that selling the news network would be the least unattractive way to get a deal done.

Marci Ryvicker, analyst at Wells Fargo, said in a research note that of the assets the DOJ was asking AT&T to divest, “the obvious choice is CNN.” She notes that “there are not potential buyers for DirecTV,” an alternative asset that could be sold to satisfy the government.

Report: Justice Wants Turner or DirecTV Sale as Condition for AT&T-Time Warner Approval

Ryvicker calculates that CNN is worth between $8 billion and $10 billion, based on SNL Kagan’s estimate that CNN generates EBITDA of $665 million and assuming a 1-15 time multiple.

Likely bidders for CNN? Ryvicker points a finger at CBS, where CEO Les Moonves has been coy about his interest in getting into cable news.

“If AT&T had to pick something based on financial considerations . . . we believe the financial impact of selling CNN would be lower than other potential options,” agreed Kannan Venkateshwar of Barclays.

“One could argue that owning a strategic news asset is certainly valuable, particularly given AT&T's move to capitalize on mobile content,” Venkateshwar added, but at $600-700 million in EBITDA, divesting it wouldn’t change the “strategic logic or economics” of acquiring Time Warner and its $8.8 billion in EBITDA.

AT&T wouldn’t want to lose all of Time Warner’s Turner, which would result in the loss of sports rights. Turner is also a big generator of cash compared with HBO and Warner Bros, which require more working capital,” he said.

Read more at broadcastingcable.com.