AMC Networks May Buyout BBC America or Get Bought Out by Netflix

AMC Networks AMCX is moving lower by 1.67 percent on the Thursday trading session, over rumors that the company may be in talks or in pursuit of a buyout of BBC America. However, nothing is completely certain, and while the deal may not necessarily be accretive, or may come with the downside of dilution, or other unforeseen risks, some analysts are willing to reiterate their optimism. Albert Fried & Co. believes that a BBC America buyout would require a bid of $200 to $350 million, and they also reiterate their outperform rating. They also believe synergies can come as a result of the rumored BBC America buyout, based on key qualitative factors: “If the AMCX buys a control stake could accept a higher price based on synergies and market leverage. On the content side we think AMCX and BBC can use its increased scale to buy catalogue and Original Content better. On streaming, the combination of BBC-A and AMCX would control about 15 of the top 50 TV shows streamed on Netflix by our estimate.” However, moving on from the prospects of an AMC and BBC America deal, Albert Fried & Co. justifies their $97 price target (implying 61% upside) on the basis of potential M&A activity, and even mentioned that such a possibility could include Netflix NFLX: “In our view the economics that work best is a merger with Netflix. Netflix is spending over $3 billion annually on content and $400 to $700 million on its own originals and we think as Netflix trades at a premium to AMCX shares on a EV/AOCF and An EV to Sales basis we think NFLX benefits the most from purchasing AMCX in a share deal. In our view, an exchange of one share of NFLX for 4 shares of AMCX results in a significant premium for AMCX shareholders ($115 versus a close of $61.54), In addition to a premium as Netflix derives roughly 30% of its subscribers from AMC content we think by purchasing AMC Netflix builds a long term content hedge as NFLX TV content could escalate and there is no guarantee that Disney, Dream Works, and TW Company content can offset content from the BBC, Fox, Sony, Lionsgate, and CMCSA as BBC, NBC, and Fox have more NFLX TV shows in the top 50 then Netflix Originals and other providers excluding AMCX.” Going forward, AMC Network may either acquire smaller content providers, or will be acquired by Netflix. The analysts at Albert Fried & Co. like the risk to reward in owning AMC Networks.