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March 26, 2007

More Media Madness

The market had its best week since 2003. The weekend is 75 degrees and sunny in Chicago. Same forecast for today. All the windows are open creating the perfect sleeping weather we all covet. Is all this good news a sign I should make a new buy today? Or does all this good news mean a top is at hand and it is time to sell?

Here is your Monday morning Media Madness:

• Tribune (TRB) is reportedly leaning toward accepting a two-step takeover from Sam Zell that will ultimately pay shareholders about $33 per share in cash. Eli Broad and Ron Burkle, who made a similar bid aren’t happy and are asking for the Board for details. This scenario could squeeze another dollar or so for TRB shareholders. There isn’t much more value in TRB but the latest news suggests the stock has minimal downside, a change from last week when the possibility that no deal would exist had the stock headed for a long period in the mid $20s.
• Regal Entertainment (RGC) should trade ex-dividend for the $2 special dividend being paid with the proceeds of the National Cinemedia (NCMI) IPO. The current yield on the adjusted price is 6.1%. I think that is too high given current interest rates and strong box office results so far this year and coming up in 2Q. I believe the stock will rebound over $20 easily in the near-term.....

• Speaking of box office, it was another strong weekend with a gain of 25% vs. a year ago. RGC's quarter ends this Thursday and the box office is tracking to be up 7%. I think this is far ahead of current analyst estimates which are stale due to restrictions related to the NCMI IPO. Comparisons toughen for a few weeks before focus shifts to the enormous potential in May when Shrek 3, Spiderman 3, and Pirates 3 all hit theatres.
• Keep on eye on the Vonage (VZ) blow-up from the perspective of the cable industry. My first reaction was to wonder whether the Verizon (VZ) patents may be applicable to the cable industry. I've asked the question and so far I hear mixed results. In general, the expectation is that the cable companies don’t have to worry about violating VZ's patents. However, one contact indicates that VZ thinks that based on how the judge ruled the cable companies may be in violation. Another thing to keep an eye on is what happens to VON's current customers, who will get the customers that Vonage would have won in next year, and will pricing firm up now that the low price competitor is leaving the market. In general, the answers to these questions are positive for cable as long as they don’t get caught up in VZ's patents.

Posted by Steve Birenberg at March 26, 2007 11:13 AM in Media