As Fox Preps Another Bid For Sky, Brean Prefers Time Warner, CBS

Twenty-First Century Fox Inc FOXA confirmed on Friday it reached an agreement in principle to acquire the remaining stake in UK-based SKY PLC (LON: SKY) it doesn't already own for £10.75.

According to Alan Gould of Brean Capital, the full combination of content and distribution has strategic merit. While Fox can gain from Sky's direct-to-consumer experience, the analyst nevertheless has some concerns related to the price tag on the deal.

Gould continued that the deal implies a near 40 percent premium to where Sky's stock was trading before the announcement, and this is "a bit rich" — especially relative to the valuation of Fox, which has been trading at its lowest valuation relative to its enterprise value. Moreover, the offer also offsets a great deal of the benefit of the relative strength in the dollar versus the pound.

Analyst's Take

Gould also added Fox is in the middle of rebuilding itself, while its film studio lineup isn't as attractive as its peers. With that said, the analyst prefers owning shares of Time Warner Inc TWX, which is trading at an 11 percent discount to the proposed AT&T Inc. T buyout offer.

Gould also recommends owning shares of CBS Corporation CBS, as the company has the "upper hand" in any negotiations with Viacom, Inc. VIAB and is the most impacted by re transmissions consent and reverse compensation.

At Last Check

• AT&T was up 2.35 percent at $41.25.
• CBS was down 3.13 percent at $60.60.
• Fox was down 5.78 percent at $26.58.
• Sky was down 1.5 percent at £985.00.
• Time Warner was down 0.16 percent at $95.08.
• Viacom was down 7.3 percent at $35.80.

Note: The analyst's report was published prior to Monday's announcement that the CBS and Viacom's merger negotiations have been withdrawn.

Image Credit: By 21st Century Fox - Extracted from homepage of 21st Century Fox (company), Public Domain, Wikimedia Commons