Can Media Company Spinoffs Like CNN and CNBC Be Good for Investors?
Recent developments in the media landscape suggest a potential resurgence in corporate spinoffs, but history has shown a mixed record for these moves, especially in the realm of media. As companies like Comcast Corp. (CMCSA) prepare to carve off cable channels such as CNBC and MSNBC into a new entity named Versant, and Lionsgate Studios Corp. (LION) completes its separation of its cable and streaming division into Starz Entertainment Corp (STRZ), investors are left pondering the viability of these new entities. Notably, there are speculations surrounding Warner Bros. Discovery Inc. (WBD) exploring similar options, particularly concerning well-known properties like CNN and the Discovery Channel.
A Historical Perspective on Spinoffs
The term “unlocking value” in the context of corporate spinoffs is reminiscent of language used during a previous wave of separations a decade ago when many media companies spun off their newspaper and magazine divisions. Unfortunately, the results from these earlier ventures were frequently disappointing, with several spinoffs leading to either acquisitions by other firms or significant declines in share value.
As Jim Friedlich, CEO of the Lenfest Institute for Journalism, highlights, not all spinoffs are created equal. A successful spinoff implies a distinct strategy aimed at creating value, while others appear to be hastily setup for asset stripping. Investors are advised to evaluate spinoff candidates based on factors such as initial debt levels, the cash position, and the caliber of the management team in place.
Evaluating Recent Spinoff Examples
The performance of recent media company spinoffs provides critical insights into potential outcomes for the new ventures in the pipeline.
The Example of Gannett
In 2015, Gannett split into two entities: Gannett Co. Inc. (GCI) and Tegna Inc. (TGNA). The newspaper company boasted 92 publications and started off with virtually no debt, ultimately achieving revenues of $3 billion in its inaugural year. Yet, an acquisition binge burdened the company with significant debt. As of 2024, Gannett recorded $2.51 billion in revenue but reported a net loss of $26.4 million. Its shares plummeted to approximately $3.50, a staggering 75% decline from their launch. This reflects the difficulties that can afflict spinoffs, turning initial optimism into caution for investors.
Tribune Publishing: A Cautionary Tale
Conversely, Tribune Publishing Co. stands as a cautionary example of what can go awry in spinoff transactions. After spinning off its newspaper properties in 2014, Tribune faced immediate challenges. Launching with $350 million in debt, the entity was strapped for cash and quickly saw its share price collapse. Despite attempts to stabilize the company through management changes and investments, it ultimately fell victim to a series of acquisitions and ownership changes, demonstrating the importance of a robust foundation in spinoff success.
The Trajectory of News Corp
On a slightly more positive note, News Corp (NWSA) executed a spinoff in 2013, separating its newspaper and publishing segments from its television and film business. Starting with no debt and cash reserves of $2.6 billion, News Corp was strategically positioned for success. Despite facing revenue declines, it has managed to transform its operations significantly, culminating in a market position that has since improved from a stock price of approximately $13.44 to highs in the mid-$30 range in 2024.
Lessons for Future Spinoffs
Analyzing the performance of Gannett, Tribune, and News Corp reveals several critical factors that inform spinoff success. These factors include initial financial structure, management quality, and market conditions, all of which impact investor confidence and share price stability.
As telecommunications and media giants proceed with their restructuring strategies, it remains essential for investors to remain vigilant. Historical performance, whether dismal or promising, serves as a paramount reference point in assessing the viability of new media spinoffs. While the potential for ‘unlocking value’ exists, only those better positioned financially, operationally, and strategically may present worthwhile opportunities for investor participation.
In conclusion, as companies explore fresh avenues and establish new identities post-spinoff, investor sentiment and macroeconomic indicators will undoubtedly play pivotal roles in shaping the future of these media entities. Keeping an eye on industry trends and remaining informed can empower investors to make educated decisions in this evolving landscape.
