Reports that Disney CEO Bob Iger is in talks to sell the ABC network are greatly exaggerated, according to sources — and some have a hard time seeing how a deal gets done at all.
Last week, sources said the Mouse House held early stage talks to sell ABC to Nexstar Media Group, which owns a massive, nationwide chain of local TV stations as well as networks like CW and NewsNation. The talks were first reported by Bloomberg.
Nevertheless, insiders emphasize that no banker has been hired and no sales book is circulating. As for Nexstar, the TV conglomerate isn’t in a good position to pay what Disney would likely be asking for ABC, according to sources close to the situation.
“Everyone is way ahead of their skis on this story,” a banker briefed on the talks said. “They don’t know what is happening here.”
“Disney taking a meeting doesn’t mean you’re ready to sell, it means you’re getting offers,” the banker added. “This is something evolving over many weeks.”
Iger put ABC into play in June when he told CNBC that legacy television assets including ABC might not be considered core for Disney in the future. Nevertheless, some skeptics saw it as Iger inviting a deep-pocketed bidder to come forward. Thus far, none have materialized.
“He told the world if someone wants to put a really big number on these assets he will sell,” a second banker said. “I just don’t see a buyer.”
According to securities filings, Disney trades at 16 times its adjusted Ebitda, or earnings before interest, taxes, depreciation and amortization. That’s a stiff premium to Nexstar’s multiple — a little better than five times — and implies a price tag for ABC that would terrify Nexstar’s shareholders, according to sources.
Disney doesn’t disclose ABC’s profitability. While some chatter has put it north of $1 billion, one source close to the company said it’s likely well south of that figure as TV viewership continues to plummet.
That implies a realistic price tag between $7 billion and $8 billion at the most — and that is likely optimistic, according to some insiders.
A large private equity firm in recent days has called Disney to express its interest in a deal, a source who consults with PE firms and has direct knowledge of the situation said. Disney told the firm it is evaluating its ABC options and has not started a sales process.
Sources said that if Iger doesn’t succeed in selling ABC, he could offer it as part of a package with other properties, such as FX and Nat Geo, for instance.
Indeed, outside of Nexstar, the other likely bidders for ABC are seen as private-equity firms, whose lack of operational synergies for ABC would prevent them from paying more than 6 or 7 times Ebitda, two bankers who have crunched the numbers said.
In the current environment, a private equity firm can’t easily borrow more than 4 to 5 times Ebitda against ABC and would likely be paying an 11 percent interest rate on those loans, one of the bankers said.
Whatever the exact number, it’s not likely to be much better than half of where Disney’s overall valuation lies — and that would make it hard for Iger to get excited about such a deal, the banker said.
“I don’t think he would and that is why all this is a silly conversation,” the banker said.
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