Paramount-Viacom Merger

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  • Topic: Warner Bros., Paramount Pictures, Time Warner
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  • Published : May 31, 2011
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PARAMOUNT AS A TARGET

WHO IS INTERESTED MORE ?

BIG DIVERSIFIED MATURED BRANDED

1

BACKGROUND
PARAMOUNT COMMUNICATIONS ESTABLISHED PRESENCE: TYPE OF BUSINESS: •  Entertainment/Motion Picture production and distribution 1934 Worldwide Gulf & Western previously, name changed after acquisition of Paramount Pictures

TYPE: HQ:

Public NYC, New York, US

•  Publishing

2

BACKGROUND
VIACOM ESTABLISHED PRESENCE: TYPE OF BUSINESS: •  Networks •  Cable Television •  Entertainment 1971 Worldwide TYPE: HQ: Public (NYSE VIA) Burbank, California US

CALIFORNIA MIDWEST TV SERIES

14 RADIO PACIFIC NORTWEST STATIONS

3

BACKGROUND
QVC NETWORK INC. ESTABLISHED PRESENCE: 1986 Worldwide TYPE: HQ: Public West Chester, Pennsylvania US

TYPE OF BUSINESS:

• 

TV home shopping

HOUSEWARES

ELECTRONICS

JEWELRY TOYS COSMETICS

4

POTENTIAL MERGER
Company Film & TV production Film Library Film Film distributio Exhibition n Cable Network Cable Operator TV stations Theme Parks Publishing

Paramount

✓ ✓ ✓

✓ ✓ ✓

✓ ✓ ✓

✓ ✓ ✓

MSG, USA (50%), SciFi (50%) MTV, VH Comple 1, Nick, mentary Showtime channels Entertain ment + QVC Shopping

7 stations

✓ ✓ ✓

✓ ✓ ✓

Viacom



5 stations 12stations

QVC

7 stations

PARAMOUNT-VIACOM
ENTERTAINMENT PUBLISHING
•  HIGHLY COMPLEMENTARY •  CROSS PROMOTION •  DISTRIBUTION UTILIZATION

PARAMOUNT-QVC
ENTERTAINMENT PUBLISHING
•  RESTRUCTURING •  COST CUTTING •  GROWTH

•  POTENTIAL SALE

•  POTENTIAL SALE

5

PARAMOUNT STAND ALONE
Estimation of cost of capital Net Debt (market ≈ balance) Equity (market value) Cost of debt D/V E/V Marginal tax rate Estimated WACC Terminal Value EV/EBITDA projection EBITDA in 1998 EV in 1998 *

End of 1993 6 6,660 7.24% 12.25% 0.05 0.95 35% 12.24%

Long-term debt Cash and Equivalents Share price Shares outstanding, m Risk - free rate (30 year Treasury) Equity beta Market risk premium

1,013
1,007

55.5 120 6.25% 1 6%

Cost of equity

13 910 11,922

Multiples Industry Average, EBITDA Est. 1993 Est. 1994 Company EBITDA EBITDA Walt Disney 13.3 12.2 Time Warner 11.2 10.4 Turner Broadcasting 14.8 11.9 Average 13.1 11.5

EV
*Risk-free

8,558
plus credit spread based on interest coverage ratio 3.61, credit rating A-

DCF+discounted Terminal Value
6

VIACOM STAND ALONE
Estimation of cost of capital Net Debt (market ≈ balance) Equity (market value) Cost of debt D/V E/V Marginal tax rate Estimated WACC Terminal Value EV/EBITDA projection EBITDA in 1998 EV in 1998 *

End of 1993 2,410 7,159 10.75% 13.45% 0.25 0.75 35% 11.82%

Cash and Equivalents Long-term debt Share price Shares outstanding, m Risk - free rate (30 year Treasury) Equity beta Market risk premium

65 2’475

62.75 53.4 6.25% 1.2 6%

Cost of equity

13 1,059 13,874

Multiples Industry Average, EBITDA Est. 1993 Est. 1994 Company EBITDA EBITDA Walt Disney 13.3 12.2 Time Warner 11.2 10.4 Turner Broadcasting 14.8 11.9 Average 13.1 11.5

EV
*Risk-free

9’246
plus credit spread based on interest coverage ratio 1.79, credit rating B

DCF+discounted Terminal Value
7

QVC STAND ALONE
Estimation of cost of capital Net Debt (market ≈ balance) Equity (market value) Cost of debt D/V E/V Marginal tax rate Estimated WACC Terminal Value EV/EBITDA projection EBITDA in 1998 EV in 1998 *

End of 1993 2,469 6% 15.25% 0.00% 100.00% 35% 15.25%

Cash and Equivalents Current Maturities of LT debt Long-term debt Share price Shares outstanding, m

14.6 3.1 7.3 65.5 37.7

Cost of equity

Risk - free rate (30 year Treasury) Equity beta Market risk premium

6.25% 1.5 6%

13 422 5,528

Multiples Industry Average, EBITDA Est. 1993 Est. 1994 Company EBITDA EBITDA Walt Disney 13.3 12.2 Time Warner 11.2 10.4 Turner Broadcasting 14.8 11.9 Average 13.1 11.5

EV
*Risk-free

3,153
plus credit spread based on interest coverage ratio 8.02, credit rating AA

DCF+discounted Terminal Value
8...
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