By Emily Bary
Comcast is most likely acquirer but Big Tech buyers could also be possible, according to Bank of America
ViacomCBS Inc. may be a "relatively sub-scale player" in the media landscape, but that could also make the company a takeover target, according to an analyst.
Bank of America Merrill Lynch analyst Jessica Reif Ehrlich upgraded ViacomCBS shares two notches Thursday, to buy from underperform, amid further media industry consolidation. After AT&T Inc. (T)announced plans to spin off its WarnerMedia business () in a combination with Discovery Inc. (DISCA), Reif Ehrlich expects there could be even more merger activity, and she points to media reports indicating that ViacomCBS (VIAC) is a potential target.
ViacomCBS shares are up nearly 3% in Thursday morning trading.
Several ViacomCBS assets "could command a premium" in Reif Ehrlich's view, with the company's expansive content library holding value either in parts or in its entirety. She previously worried about the company's ability to navigate the shift to streaming but said that those risks "would be significantly alleviated" if ViacomCBS were to merge with a larger company that adds scale and resources.
Comcast Corp. (CMCSA) strikes Reif Ehrlich as the most likely buyer as the combination would "create a powerhouse in film" between ViacomCBS's Paramount unit and Comcast's Universal Studios. Together, the companies would have an "increased footprint" in ad-based video on demand and Viacom's franchises could lead to new attractions at Universal theme parks.
A hypothetical deal between these two players would likely require a spinoff of CBS, according to Reif Ehrlich, given that Comcast already runs the NBC network.
Other possible buyers include Big Tech companies. Reif Ehrlich highlights reports suggesting that Amazon.com Inc. (AMZN) is interested in a purchase of MGM studios (), which would represent a deeper dive into media.
"Whether AMZN would consider committing to the entirety of VIAC remains unclear, however, Paramount and VIAC's other content assets (CBS, Showtime, Nickelodeon, etc.) appear largely complementary to AMZN's strategic streaming priorities," she wrote.
Apple Inc. (AAPL), too, could be a potential buyer given that the company is newer to the game in streaming. Premier content assets require "years to build organically and an acquisition would accelerate Apple's ability to scale," Reif Ehrlich wrote.
Even Netflix Inc. (NFLX), which has a far larger library that Apple, might see something appealing in ViacomCBS's collection of franchises.
"To date NFLX has been non-acquisitive but the intensifying competitive landscape could facilitate a change in strategy," Reif Ehrlich wrote. "The lack of franchises is a notable gap within NFLX's content offerings creating challenges as NFLX is required to build a new audience with each new show it creates."
She raised her price objective on the stock to $53 from $38, with the new target representing a sum-of-the-parts approach to the valuation.
ViacomCBS shares have lost 35% over the past three months as the S&P 500 has risen 6%.
-Emily Bary; 415-439-6400; AskNewswires@dowjones.com
(END) Dow Jones Newswires
May 20, 2021 11:49 ET (15:49 GMT)
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