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Deal chatter lifts US media stocks as political news roils broader markets

Even as political news sent the broader markets into the red Dec. 1, U.S. media investors found some things to celebrate during the week after Thanksgiving. A series of deal announcements boosted shares of several media and entertainment companies as industry observers eyed further M&A prospects.

Before U.S. markets opened for the week, Meredith Corp. grabbed headlines Nov. 26 when it announced an agreement to buy magazine publisher Time Inc. in an all-cash transaction valued at $2.8 billion. Meredith agreed to pay $18.50 per share for Time, the publisher of Fortune, People, InStyle and Sports Illustrated, among other titles. The combined entity is expected to have a readership of 135 million and paid circulation of nearly 60 million. Meredith's 17 TV stations aside, the resultant company would feature a digital media business reaching 170 million monthly unique visitors in the U.S. and generating 10 billion annual viewers.

Analysts said they expected the deal to create some divestiture opportunities for the combined entity, especially given Meredith's traditional focus on titles tied to lifestyle, entertainment and women. Samir Husni, the director of the Magazine Innovation Center at the University of Mississippi, School of Journalism, expects the combined entity to sell several leading titles, such as the Time, Sports Illustrated and People brands. But Benchmark Co. analyst Daniel Kurnos does not believe the divestitures will be that widespread, saying Meredith might unload "one or two of the large brands."

Just a few days after announcing the Meredith deal, Time unveiled plans Nov. 30 to sell Sunset, a print and digital lifestyle brand focused on the American West, to Los Angeles-based private equity firm Regent LP, led by investor Michael Reinstein. Sunset was among a handful of brands already marked for sale by Time Inc. before the Meredith deal was announced. Meredith President and COO Thomas Harty said the company would allow Time to continue pursuing deals for those assets, which in addition to Sunset include Time Inc. UK, Golf and Essence.

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Shares in Time closed Dec. 1 at $18.60, up from a Nov. 24 close of $16.90. Shares in Meredith closed at $67.90 on Dec. 1, up from a close of $61.00 over the same time period.

Outside of the publishing industry, U.S.-based motion picture exhibitor Regal Entertainment Group confirmed Nov. 28 that it is discussing a potential merger deal with the U.K. movie chain Cineworld Group plc.

Under the proposed transaction, Cineworld would purchase Regal Entertainment in an all-cash transaction worth $23 per share. But some analysts questioned the economic plausibility of such a deal. B. Riley analyst Eric Wold and Wedbush Securities analyst Michael Pachter both noted the purchase price sought by Regal is well above Cineworld's entire enterprise value. "It just sounds completely implausible to me, and I actually think ... Cineworld would like to sell," Pachter said.

On the other hand, the deal would be in line with an international consolidation trend started by AMC Entertainment Holdings Inc. and its Chinese parent Dalian Wanda Group Corp. Ltd. The companies have purchased Carmike Cinemas Inc., Nordic Cinema Group Holding AB and ODEON & UCI Cinemas Group Ltd, with the latter two deals adding more 2,500 screens in the U.K. and Europe.

While Pachter remains unconvinced a deal between Cineworld and Regal will materialize, the chatter was enough to send shares in Regal and other theater chains northward.

Shares in Regal closed Dec. 1 at $20.50, up from a Nov. 24 close of $17.37. Shares in AMC Entertainment and Cinemark Holdings Inc. closed at $14.00 and $35.85, respectively, on Dec. 1, up from Nov. 24 closes of $13.85 and $34.24.

Discovery Communications Inc. shares also saw positive movement during the week, closing Dec. 1 at $19.46, up from a Nov. 24 close of $17.50.

During a Nov. 29 interview with CNBC (US), Discovery CEO David Zaslav said with the company's pending acquisition of Scripps Networks Interactive Inc., the combined entity stands to be "a free cash flow machine," especially when compared with other media networks and platforms — including HBO / Cinemax (US), Netflix Inc. and Amazon.com Inc. Zaslav said that while other groups will be spending billions of dollars on scripted content, Discovery and Scripps will continue to focus on the nonscripted, nonfiction category.

"We'll be very strong in nonfiction," he said, noting the company's "cost of content is about 10% of what the cost of content is for scripted."

The expected free cash flow, he said, "will generate a lot of security for us over the next couple of years."