News

Buyers circle suddenly attractive U.S. media companies

Posted by: Admin | Posted on: November 17th, 2017 | 0 Comments

WASHINGTON (Reuters) – All of a sudden, it seems, everybody wants to own a U.S. media company.

In the last few weeks, several of the world’s biggest telecommunications and media companies have started circling Twenty First Century Fox Inc with an eye to buying a significant piece of Rupert Murdoch’s global media and entertainment empire.

Potential suitors include Comcast Corp, Verizon Communications Inc and Walt Disney Co. Meanwhile, Meredith Corp is considering a bid for Time Inc and Discovery Communications Inc is acquiring Scripps Networks Interactive Inc.

Viacom Inc shares rose 10 percent on Friday, suggesting it may also be a takeover target.

The sudden surge in merger and acquisition activity in media looks to be powered by relatively low asset prices, cheap financing and the prospect of tax cuts.

There are also longer-term forces at work: traditional media companies are struggling with more customers canceling pricy cable contracts while Netflix Inc and Amazon.com Inc are spending billions of dollars on making shows and movies.

More viewers now stream programming on smartphones or other devices, diverting the flow of advertising dollars away from traditional media companies.

“This is an industry that is going through incredible disruption. You can look at what Netflix is doing and how they’re building subscribers,” said ATT Inc Chief Executive Randall Stephenson at a conference last week.

“Everybody’s reimagining and rethinking their business models,” said Stephenson, head of the wireless carrier which is itself in the process of buying media and entertainment company Time Warner Inc for $85.4 billion.

If that deal overcomes U.S. antitrust objections and other transactions go ahead, it will make Comcast, the U.S. No. 1 cable provider and owner of NBCUniversal, look “relatively tiny in a landscape dominated by tech giants,” said BTIG analyst Rich Greenfield.

RULES OF ENGAGEMENT

The House of Representatives took a major step on Thursday toward the biggest U.S. tax-code overhaul since the 1980s.

If corporate tax cuts become law, there may be a wave of merger and acquisition activity across all industries, media investor Mario Gabelli told Reuters earlier this week.

“You will have global lovemaking at an accelerated rate,” he said. “Companies are ready to grow… They just need to have what the rules of engagement are.”

At the same time, the debt financing markets have remained wide open for major transformational deals this year, though recent skirmishes in the junk-bond market have served as a reminder this may not last for long.

U.S. fund investors walloped high-yield funds with their biggest week of withdrawals since March, Lipper data showed on Thursday.

Still, most mega-deals look possible, especially if the combined company’s debt remains investment grade. Banks have been eager this month to open their wallets for what could be the biggest syndicated loan financing ever for an investment-grade acquisition, backing chipmaker Broadcom Ltd’s unsolicited $103 billion bid to buy Qualcomm Inc.

Assets that could be on the block look cheap. Shares of media companies have long traded at a discount to the wider market. Fox, for example, trades at around 13.9 times estimated earnings per share for the next year, in line with the wider media sector at 13.6. The broader SP 500, meanwhile, trades at 18 times next year’s earnings.

Media firms’ generally high debt loads and the threat posed by technology companies elbowing their way into new markets have compressed those multiples.

Weak earnings have contributed to that. Fox’s profit per share is down about 50 percent from 2013, while Viacom’s is up only slightly. CBS’s net income has shrunk about 33 percent in that time, but earnings per share have risen thanks to stock buybacks.

The outcome of ATT’s purchase of Time Warner is being keenly watched by potential acquirers. U.S. President Donald Trump is a frequent critic of Time Warner’s CNN and he vowed to block the deal when he was on the campaign trail last year.

The Justice Department is expected to sue ATT to block the deal, but the wireless carrier has vowed to fight in court.

“Everyone will seek consolidation partners if ATT succeeds,” said Gene Kimmelman, a veteran of the Justice Department’s antitrust division, and now president of the advocacy group Public Knowledge.

Reporting by Liana Baker, Anna Driver, Jessica Toonkel, Anjali Athavaley, Diane Bartz, Greg Roumeliotis and Dan Burns; Writing by Chris Sanders; Editing by Bill Rigby

Despite Amazon, brick stores are not dead yet

Posted by: Admin | Posted on: November 17th, 2017 | 0 Comments

NEW YORK (Reuters) – Just in time for the Black Friday kick-off to holiday season shopping, stock market investors have been handed tools to bet on the decline of brick-and-mortar retail.

As of Friday, these tools were not yet for sale on Amazon.

An exchange-traded fund launched Thursday allows investors to bet on the decline of traditional retail and a second one doubles down by betting at the same time on the rise to supremacy of online sales.

The Decline of Retail Stores ETF and the Long Online Short Stores ETF are self-explanatory. The main index they track inversely, the equal-weighted Solactive-ProShares Bricks and Mortar Retail Store Index, is composed of 64 retailers including Barnes Noble, Sears, Office Depot, Macy’s and Walmart, which have chains of physical stores as well as online presence.

They are not the only or the first planning for a decimation of the retail sector at the hands of Amazon and other online retailers. Research firm Bespoke introduced its Death by Amazon Index, currently with 54 components, in 2012.

The trend to online shopping is not new, but with online taking only a fraction of all retail sales, the ETFs expect to capitalize on the long-term trend.

“Online penetration is about 10 percent right now so there is a long way ahead for the strategy in our opinion,” said Michael Sapir, CEO of ProShare Advisors in Bethesda, Maryland.

“A minority of brick and mortar (retailers) will be able to make the transition and it is going to be expensive and painful.”

So far this year, the SP 500 retail index is up 20 percent but only half of its 29 components have had a positive price return. Amazon, up over 50 percent this year at $1,129.88, has alone added $192 billion in market capitalization in 2017. The full index has gained roughly $230 billion.

Glen Kacher, whose Light Street Capital Management hedge fund was up 53 percent from January to October, said he is

“shorting almost every retailer,” betting their share prices

will fall.

Kacher said many big retailers have failed to adapt to changing customer preferences, lagging even some corner delis that now use technology that lets people buy their breakfast sandwiches and coffee in seconds with the tap of a finger.

“The retailing industry is going to be an apocalypse,” he said, without identifying which retailers will go down in flames. “Anyone working in the consumer retailing industry … should be training for a new job.”

For a graphic on retailers’ market value see (reut.rs/2zLFXiN)

CLICK AND MORTAR

Reports of the death of brick and mortar retail could be mildly exaggerated, however.

Retail and food service sales in the United States during the first three quarters of 2017 totaled $4.78 trillion, with the $484.4 billion in September a monthly record high, according to U.S. government data.

About 164 million Americans plan to shop in the coming Thanksgiving weekend, including on Black Friday and Cyber Monday, according to the National Retail Federation.

Results from this week show the battle for consumers is far from lost at physical stores. Walmart, for instance, said third-quarter U.S. sales growth online and in-store was the strongest since 2009.

A combination of online presence and easy access for consumers known as ‘click and mortar’ will allow some names to survive by letting their customers browse all their options online while offering the convenience of a quick pickup of the product on their drive home.

Shares of Walmart touched a record high on Friday, as did those of Home Depot, which earlier in the week raised its full-year profit and sales forecasts.

They are one of two kinds of retailers that analysts said would be better able to weather the online retail storm. Size will matter, and with more than 5,000 U.S. stores at Walmart and over 2,200 Home Depots in North America, their distribution network will be a key lifeline.

“Walmart is transforming itself into a major competitor of Amazon,” said Chad Morganlander, portfolio manager at Washington Crossing Advisors in Florham Park, New Jersey.

“Our belief is there will be some winners on brick and many online retailers will start looking more traditional.”

The other retailers seen surviving are those in search of a small niche that will allow them to keep margins growing, countering the trend of ever-smaller margins online.

“Unless you know exactly what you’re going to order and it is mass market, you don’t go to Amazon,” said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.

“Holiday shopping means meaningful gifts. If you’re a good retailer you can take advantage of that.”

Reporting by Rodrigo Campos in New York; Additional reporting by Jennifer Ablan; Editing by Megan Davies and James Dalgleish