January 12, 2017 / 9:19 PM / 2 years ago

CNN sale could be pivotal in AT&T-Time Warner deal

Democratic U.S. presidential candidate Hillary Clinton (C) speaks as moderator Anderson Cooper (L) and rival Bernie Sanders listen during the Democratic U.S. presidential candidates' debate in Flint, Michigan, March 6, 2016. REUTERS/Jim Young

NEW YORK (Reuters Breakingviews) - It’s hard to predict anything about Donald Trump’s presidency. That’s true for the approval of AT&T’s $85.4 billion deal to buy Time Warner, too. At the very least, U.S. watchdogs could demand concessions from the telecom firm to allow the merger. One could be disposing of news network CNN.

Even before the reality-TV star won the White House, he expressed disapproval of the deal, saying it concentrated power too much, specifically in relation to the media. Time Warner owns CNN.

Then, during Wednesday’s unorthodox press conference, Trump singled out CNN for criticism - as he often did on the campaign trail - along with BuzzFeed. He labeled both outlets peddlers of “fake news” and refused to take a question from a CNN anchor.

It’s not supposed to be up to Trump, but regulators might think offloading CNN would make AT&T-Time Warner a less worrying combination. Moreover, it might even be a divestment AT&T wouldn’t mind making.

It’s true that CNN just capped one of its best years ever with $1 billion of operating profit and its election-year ratings hit highs not seen in years. Broadly, however, cable news is in decline. CNN still couldn’t beat its 2008 record of viewers overall and in the important 25-54 age group in prime time.

It would be a meaningful sale, too. CNN, like peers Fox News and MSNBC, operate within larger conglomerates, making directly relevant valuations scarce. Time Warner, though, is currently trading at a little over 10 times estimated 2017 EBITDA, while the New York Times runs about eight times.

Split the difference, and CNN could be valued at around nine times EBITDA for this year. Assuming that measure of profit increases 10 percent to $1.1 billion, and CNN could be worth about $10 billion. CBS might be a possible buyer. So too would wealthy individuals who fancy themselves the Jeff Bezoses of cable news.

AT&T Chief Executive Randall Stephenson met with Trump on Thursday but the topic of the merger was not discussed, according to AT&T. Rather, the two chatted about investment and job creation. Doing that without CNN would have the benefit of depriving the president-elect of a favorite target.


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