AT&T working with Citi to shop RSNs, sources say

Provided by Mergermarket

AT&T [NYSE:T] has engaged financial advisor Citi to run the sale process for its regional sports networks (RSNs) business AT&T SportsNet, said three sources familiar with the matter.

Sinclair Broadcast Group [NASDAQ:SBGI] will likely take a close look at the assets, following the Maryland-based broadcaster’s USD 9.6bn deal to buy RSNs divested by Walt Disney [NYSE:DIS] as part of its acquisition of Twenty-First Century Fox, said one of the sources and a sector advisor.

Cable giant Comcast [NASDAQ:CMCSA] is unlikely to make a run at the RSNs, despite its extensive portfolio of sports networks, the second source and a fourth source familiar with the matter said. Comcast was reported as a potential suitor for the Fox RSNs early in the process, but ultimately did not bid for the assets.

Bloomberg News first reported in early July that AT&T was considering selling its collection of RSNs, a portfolio of four networks that carries teams including the Seattle Mariners, the Colorado Rockies and the Houston Rockets. The report said the potential USD 1bn asset sale is aimed at helping the Dallas-based content creation and distribution group pay down USD 8bn in debt this year. AT&T has a USD 250bn market cap.

The sale consideration is still at an early stage and no process has officially begun yet, the first three sources said.

The sources disagreed on the potential valuation the networks could achieve, with the third source putting it at over USD 1bn, while others said they expect a valuation below this figure.

The first source said that the economics of RSNs are under ever more pressure as other players in the media ecosystem push back on rising content costs, pointing to a decision by DISH Network [NASDAQ:DISH] to drop the Fox RSNs that Sinclair agreed to acquire.

On DISH’s 2Q19 earnings call on 29 July, DISH chairman Charlie Ergen described the RSNs as “not very good economic deals for us,” adding that, despite some inevitable customers losses it appears unlikely that the RSNs “will ever be on DISH again.”

The third source added that, since the Seattle Mariners own a majority of Root Sports Northwest, one of AT&T’s four networks, the proportional EBITDA available to a buyer is closer to USD 100m. Given that the Fox RSNs did not achieve a 10x EBITDA multiple, this makes it challenging for AT&T to reach a USD 1bn price tag, unless the Mariners can be convinced to be part of a deal, this source said.

MSG Networks [NYSE:MSGN], a publicly traded operator of RSNs, among other businesses, trades at an EV/EBITDA multiple of just under 7x EBITDA.

AT&T, Citi and Comcast declined to comment. Sinclair did not respond to requests for comment.

by Jonathan Guilford and Bhavna Kaul

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