We have conducted an analysis of the TV stations owned by publicly traded companies, based on the location of their duopoly stations and expected auction dynamics, as well as in some cases company executives’ public commentary. We estimate that the group of 12 companies shown below could generate from $6.99 billion to $12.99 billion in an 84 MHz at the low-end and 120 MHz at the high-end clearing scenario in the FCC Incentive Spectrum Auction, should it proceed as planned.We conduct valuation analyses regularly in our SNL Kagan consulting activities.
Station owners on March 29 submitted their confidential binding bids for auction participation. The FCC has said it expects to announce the initial clearing target and band plan three to four weeks after that initial commitment deadline, which will be followed by the start of the mock auctions.
The FCC has maintained that as much as 126 MHz of U.S. spectrum can be freed up initially from TV stations either going dark or selling part of their individual spectrum. The initial target is around 100 MHz of spectrum to be cleared from participating stations (the reverse auction), and at least 80 MHz in order to have enough spectrum to meet the hoped-for demand from wireless company bidders in step two of the auction (the forward auction).
The appetite of buyers to pay up for 600 MHz spectrum is still unknown, although the list of potential bidders that the FCC issued March 18 contained 104 names, including all the usual suspects — AT&T Inc., Verizon Communications Inc. and T-Mobile US Inc. — as well as a number of newcomers. All else being equal, carriers do need spectrum and should be highly interested. Estimates for how much the auction may raise have ranged from $15 billion to as high as $85 billion, with recent Wall Street estimates coming in at $25 billion to $35 billion.
Our analysis shows that Univision Communications Inc., which has long talked up its potential to participate in the auction, has the highest estimated take under our assumptions at nearly $2.47 billion and 23 stations likely to be tendered or part of channel shares in the auction at the admittedly steep 120 MHz clearing level. At the 84 MHz level, that potential take drops to just shy of $1.31 billion, as the overall demand would be lower and the total number of stations needed fewer. At the 120 MHz level, Univision is followed by Comcast Corp. at $2.21 billion, Twenty-First Century Fox Inc. at $2.13 billion and CBS Corp. at $1.86 billion.
While some other publicly traded groups like Sinclair Broadcast Group Inc. and Media General Inc. have lesser amounts, their potential take is larger than for some others in terms of a per-share premium. For example, for Sinclair, the potential after-tax value at 120 MHz is estimated at $10.87, which is a 34% premium over the company's closing price of $31.53 on April 6 (Sinclair intrigued investors last August when it said that it could generate billions from the upcoming FCC spectrum incentive auction with little to no effect on cash flow). For CBS, on the other hand, our calculated after-tax value per share is $2.71, or a 5% premium as of April 6.
Our estimates put Tribune Media Co. at more than a $600 million take at 120 MHz or just $237.3 million at 84 MHz. Tribune execs have told investors that the company has 10 stations in nine of the top 10 most valuable spectrum markets, and that it would actively participate in what management hoped would be a robust auction. Some groups, such as TEGNA Inc., have publicly acknowledged that their opportunity lies more in channel-sharing with other partners than in outright monetization, making it unsurprising that it falls to the bottom of our table.
This analysis should be considered a guideline only; it is not an engineering study of the stations with multiple simulations to better predict bidding outcomes. Rather, it is a financial analysis based on the stations that may be tendered and the expected behavior of other auction participants; however, the multiplicity of variables in the analysis makes outcomes impossible to predict.
Should the FCC succeed in clearing more spectrum, the amount that the companies shown could generate would be higher due to greater demand for the stations. On the downside side, if there is weak demand and the FCC is able to satisfy its clearing goal with other stations that might accept lower prices than the major groups would be prepared to accept, the major owners’ take could conceivably drop significantly.
However, we believe that in a successful auction scenario, the FCC would still need a high enough number of the stations with the maximum impact on clearing goals in the station's market (as well as adjacent markets) indicating that in key markets the companies shown still have the potential to successfully tender stations.