MoffettNathanson: Fox-Tribune Makes Sense

Fox’s unconfirmed plan to form a joint venture with the Blackstone private equity firm to buy Tribune Media and form a super group comprising Tribune’s Fox affiliates and Fox’s O&Os makes sense from “an offensive and defensive point of view,” securities research MoffettNathanson says in a note to clients.

The Financial Times first reported the plan yesterday with neither Fox nor Tribune commenting.

According to MoffettNathanson, the joint venture would likely keep only Tribune’s 14 Fox affiliates, spinning off 28 others, including ABC, NBC and CBS affiliates and major-market CW affiliates.

“Offensively, first, [the deal] would take a growing asset off [Fox’s] books and move it below the line,” although it would complicate its financial reporting, the note says. “Second, the deal would protect Fox from the volatile local ad market. Third, Fox would create incremental value not only from cost synergies combining two station portfolios, but more importantly gaining exposure to many key NFL markets,” including Seattle, Milwaukee, Denver, Cleveland, Indianapolis and San Diego.

The deal makes sense defensively because it keep Tribune’s stations out of the hands of the Sinclair Broadcast Group, which is also interested in acquiring them, the note says.

“Sinclair might decide to start a competing Fox News Channel or even go further to create a new national network by buying the next set of NFL rights when they come due in a few years, essentially using Fox’s own playbook.

“Also, the combination of Tribune and Sinclair would create a behemoth that owns 68 individual Fox affiliates which could up-end the favorable pro-network dynamics of the current reverse retrans marketplace. However, note that Fox also holds the right to block any change in Fox affiliation when there is a change in ownership.”