UPDATE 1-Teletubbies' DHX buys kids TV channels from BCE, shares surge

Thu Nov 28, 2013 3:05pm EST

By Euan Rocha

TORONTO Nov 28 (Reuters) - Teletubbies owner DHX Media said on Thursday it will acquire Family Channel and three other children's channels from BCE's Bell Media for C$170 million in cash, adding content distribution to its current capabilities.

The deal, cheered by analysts and investors, sent DHX shares surging 38 percent to a lifetime-high of C$5.74 in morning trading on the Toronto Stock Exchange.

Halifax-based DHX, which creates, produces or licenses, children's shows such as Teletubbies, Yo GabbaGabba and Caillou, said the deal will boost its earnings and give it a stable stream of subscription-based revenue.

RBC Capital Markets analyst Haran Posner described the deal as "transformational," noting that DHX is paying a very attractive price for high quality assets.

"The acquisition strengthens DHX's core content businesses, providing the company with a distribution channel to promote its own family and kids brands," he said in a note to clients.

Cormark Securities analyst David McFadgen boosted his rating on DHX to "buy" from "market perform." DHX shares were up 26 percent at C$5.27 in afternoon trading on the TSX.

DISTRIBUTION FOCUS

DHX chief executive Michael Donovan said changes in the media sphere were behind the deal.

"You can't be a creator and not also be a distributor any longer, that's obvious," he said in an interview. "If you look at the world of YouTube for example, people are constantly creating and distributing on that platform at the same time."

DHX said Family is Canada's most watched kids channel, with some 5.7 million subscribers. The other channels being acquired are Disney XD, Disney Junior (English) and Disney Junior (French). The four channels together generate over C$80 million in revenue in annual revenue.

The deal, being financed via cash on-hand and debt, is expected to close in 2014, following regulatory scrutiny.

Canada's Competition Bureau ordered BCE to sell these television channels, and some others, to win approval for its C$3 billion ($2.8 billion) takeover of Astral Media Inc.

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