AMC Networks (AMCX) is the company behind the television channels AMC, IFC, Sundance Channel, and WE TV. The company also owns IFC Films. The company was recently spun off from Cablevision (CVC). Cablevision has been in a phase of divesting assets as it also recently spun off Madison Square Garden (MSG).
The main part of AMC networks is the AMC channel, which is available in over 97 million homes in the United States. The channel currently has the successful Mad Men, Breaking Bad, The Walking Dead, and The Killing. AMC has only been public for less than three months and has some future events which could lead to huge drops in share price.
The company is currently in the headlines for its struggles with Breaking Bad, which is owned by Sony (SNE) and is being shopped to other networks due to disputes over several issues including the number of episodes. The show, which is in its fourth season, has always had a 13-episode season run but AMC wants to lower it to six or eight episodes. This dispute could lead Breaking Bad to another network. The cable show has won numerous awards and is a critical hit. The season premiere of season four was shown to over 2.5 million viewers. The producers behind the show want to have two more seasons before wrapping the series up. If AMC lost the show, it would hurt its revenue from ads as it only has a couple of shows active right now.
Negotiations over Mad Men have left the company to the point of making a loss on the series. The producers and writers of the shows are some of the highest paid in the cable television market. The series as of now will have three more seasons with its current writing team. The show is also part of a deal with Netflix (NFLX). Netflix will have the right to air episodes from past seasons and also new episodes after they air on AMC. If a small portion of viewers decide to wait to watch the show for free on Netflix, it could hurt the company's viewership and future advertising sales.
Frank Darabont, who is the man behind such hits as The Shawshank Redemption and The Green Mile, stepped down from his writing and directing duties on The Walking Dead. The show, which will see its season 2 premiere on October 16, is currently the most-viewed show in AMC history. It's hard to believe that a show that is about zombies could beat out Mad Men and Breaking Bad for viewers, but this proved true during season 1. The series premiere had over 5 million viewers and the finale saw close to 6 million viewers. It will be interesting to see how fans take the departure of Darabont. The man was the creative force behind the plot and series development. Without his vision, the show could turn into a clone of other zombie television shows and movies.
The finale of AMC's The Killing left several of the 2.7 million viewers mad at the way the show ended. The finale has been considered one of the most upsetting season finales ever. It will be interesting to see if the controversial ending will increase or decrease the viewers for season 2.
With Mad Men and Breaking Bad entering the end of their runs, AMC needs to load up the pipeline with new shows that can extend the cable channel's popularity. AMC recently ordered a 10-episode first run of Hell on Wheels. The show, which will be based on the building of the Transcontinental Railroad, will air in November and could provide a nice compliment to The Walking Dead in the fall. The show stars Common as a freed slave during this period in American history.
Despite these setbacks that could happen, the company was spun off from Cablevision likely to be sold off to another cable television network. If a company is willing to take on AMC and its $2 billion in debt, it could be a unique asset for a larger company.
Possible takeover candidates include:
Discovery Communications (DISCA), which owns TLC, the Discovery Channel, and part of the Oprah Winfrey network. The company is gaining popularity with men from its Shark Week and Discover Channel offerings, and shows like The Walking Dead and Breaking Bad could help the company attract target viewers in the male 18-49 demographic. The company would help expand the brand through cross marketing but seems like a different genre and could get lost in its portfolio.
Scripps Network (SNI) owns the Food Network, HGTV, and the Travel Channel. The company is looking at beefing up its portfolio and the buyout of AMC could help it broaden its reach to a male demographic.
Time Warner (TWX) owns several cable channels including premium pay channels HBO and Cinemax. The company could increase advertising sales for AMC shows by using its large scale of offreings and also could move shows to premium channels to make users pay to view them.
CBS Corporation (CBS) is a large media company that could purchase AMC to pair with its successful Showtime franchise. Showtime actually has over 20 million subscribers to its premium content. CBS should take note and split Showtime off into a separate company or could merge it with AMC.
News Corporation (NWS), the company behind Fox and cable channels like FX and Speed, has a wide male base and could expand its presence with a purchase of AMC. News Corporation, which has been in the middle of controversies lately, will likely look to acquisitions to get shareholders excited in the company once again.
Lions Gate Films (LGF) is a leading independent movie company. The company has a market cap of under $1 billion and could actually be acquired by AMC. AMC would gain a large catalog of movies which could be aired on AMC, IFC, or the Sundance Channel. This would be a great merger of sorts to provide a large amount of content to viewers of both movies and television.
Shares of AMC have retreated from their high of $44.21 and currently sit at just over $35 a share. I am not a buyer of shares here due to the negatives that could hurt the company in the near future. The company has some good quality shows. AMC does not have the size and scale to fully take advantage of these hits. Look for the company to get acquired in the next three years. A deal with AMC and Lions Gate excites me and requires additional research into that company.
I would be a buyer of AMC at $30 as a buyout would likely come in at $40-45 a share, which would provide up to 50% upside in the share prices.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.