youniversity deal cahllenge 2017 (1)

2017 Duff & PhelpsYOUniversity Deal ChallengeValuation of Home Box Office (HBO)

The Ohio State University

Hannah Hoffer | Marco Macali | Judson McDaniel

2

Section Topic Page

I. Executive Summary 3

II. Deliverable 1 9

III. Deliverable 2 18

IV. Deliverable 3 26

V. Appendix 31

Table of Contents

Duff & Phelps

Executive SummarySection 1

Duff & Phelps 3

Executive Summary

❖ When analysing the current state of HBO, it was found that a number of key indicators showed consistent growth to this point and were forecasted 4 years out to continue that consistent growth at or above the industry average. The calculated enterprise value of HBO makes it an attractive entity for a potential buyer and the comparables analysis revealed a similar enterprise value to that which was calculated. Furthermore, the precedent transactions analysis again revealed an enterprise value that is nearly the same as the comparables and very close to the discounted cash flow model.

❖ With the favorable M&A market and valuations of media companies, the decision to sell HBO would result in a host of possible buyers. We recommend that Time Warner pursue a strategic buyer due to its general financial capacity to buy, willingness to pay more, and desire to absorb an entity like HBO. Based on the current trend of media conglomerates in the market, HBO’s content creation and forecasted subscription growth would be most attractive to Apple. Apple’s desire to expand into this industry and their ability to purchase HBO outright makes them the ideal buyer.

❖ In April 2016, HBO experienced problems related to the illegal downloading and sharing of their HBO original Game of Thrones. Over 2 million copies were estimated to have been downloaded without any form of payment. We recommend that in order to fight back against this large scale piracy, HBO should seek punitive and compensatory damages from both Bit Torrent and from each individual who had illegally downloaded a copy. HBO should seek to punish both parties to the fullest extent in order to curb against the threat of illegal downloading in the future.

Duff & Phelps 4

Industry OverviewSection 2

Duff & Phelps 5

Global Media Industry - Backdrop• Current state of the regions:

–Latin America (Brazil as main driver) was fastest-growing region in 2014, followed by Asia Pacific (China as main driver)

• Digital consumer spending is expected to be principal market driver will overtake traditional consumer spending in 2017

• Digital consumer spending consists of broadband, OTT digital video, OTT subscriptions etc.

Duff & Phelps 6

*Source: McKinsey Global Media Report 2015

Global Media Industry - Backdrop (continued)

Two primary themes in today’s environment:Shift to digital - redefining business modelsDeveloping markets driving growth

What this means: growing move away from “bundled” media move toward “self-service re-bundling” faster broadband growth in developing regions increased slowdown in pay TV TV distributors must introduce flexible models provide more OTT content slowdown of Brazilian economy dampen pay TV growth in Latin America

7*Source: McKinsey Global Media Report 2015

“Reflecting this uncertainty, we would not be surprised to see a number of global media organizations reshuffle their corporate structures over the coming months in an effort to create clarity for their investors—and perhaps their management—around the roles of the different types of media businesses in their portfolios”

Company Website

HBO’s Outlook on Entertainment & Media

•The subscriptions for pay-tv and individual networks has declined and there has been a shift to smaller bundles of content and a rise in subscriptions for SVOD services

•The penetration of broadband and internet-connected devices has grown, which has led to a growing number and variety of internet delivered video services that do not require a traditional Multichannel video service (MVPD) subscription or MVPD provider set-top box hardware.

These include Subscription video on Demand (SVOD) services such as Amazon Prime, Hulu and Netflix, which have continued to increase their number of subscribers and have been, and are expected to continue, making significant investments in acquired and original programming

•Television networks, media and technology companies have announced that they will or plan on launching virtual MVPDs, with original content and bundles of networks delivered through the internet

•Ad dollars have began shifting to non-traditional video outlets

8

HBO ValuationSection 3

Duff & Phelps 9

Stand-Alone Fair Market Value

10

Precedent Comps DCF$0.00

$5,000.00

$10,000.00

$15,000.00

$20,000.00

$25,000.00

$30,000.00

$35,000.00

$40,000.00

$45,000.00

$50,000.00

$28,978.48

$16,547.60

$30,574.80

$43,393.73

$28,050.20

$34,073.23

Football Field Valuation

Implied EV(in millions USD)

Discounted Cash Flow Analysis

11*Bloomberg, Time Warner 10-K

Key Assumptions:-Future Sales Forecast Based on 4 Year CAGR by division; 3.7% average annual growth of total revenue-Growth Predictions for HBO NOW included and in line with management expectations -Costs calculated as a % of Revenue-HBO comparable capital structure to parent company Time Warner-Tax Rate: 25.3%

HBO Valuation: 30.57 - 34.07 MM

Forecast

2016 2017 2018 2019 2020

Total Revenues 5,875.5 6,148.3 6,434.2 6,733.8 7,047.7

EBITDA 2,018.0 2,115.9 2,218.5 2,326.0 2,438.6

Net Income 1,508.0 1,581.2 1,657.9 1,738.2 1,822.4

Free Cash Flow 1,524.0 1,597.2 1,673.8 1,754.2 1,838.3

WACC 4.45 - 4.89%

Enterprise Value 30,574.8 - 34,073.23

12

Actual Forecast

2012 2013 2014 2015 2016 2017 2018 2019 2020 CAGR

Subscription 4,010.0 4,231.0 4,578.0 4,748.0 4,952.8 5,166.5 5,389.3 5,621.8 5,864.3 4.3%

Content and Other 676.0 659.0 820.0 867.0 922.7 981.9 1,044.9 1,112.0 1,183.3 6.4%

Total Revenues 4,686.0 4,890.0 5,398.0 5,615.0 5,875.5 6,148.3 6,434.2 6,733.8 7,047.7 3.7%

Gross Margin 48.78% 51.57% 49.83% 49.94% 50.04% 50.04% 50.04% 50.04% 50.04%

Gross Profit 2,286.0 2,522.0 2,690.0 2,804.0 2,939.9 3,076.4 3,219.5 3,369.3 3,526.4

EBITDA 1,579.7 1,815.9 1,784.6 1,955.4 2,018.0 2,115.9 2,218.5 2,326.0 2,438.6

Net Income 1,180.5 1,357.0 1,333.6 1,461.3 1,508.0 1,581.2 1,657.9 1,738.2 1,822.4

Depreciation 85.0 91.0 77.0 81.0 83.5 83.5 83.5 83.5 83.5

Segment CapEx 65.0 45.0 58.0 68.0 59.0 59.0 59.0 59.0 59.0

Allocated Portion of Corporate Expenses:

CapEx 8.0 14.4 7.6 4.1 8.5 8.5 8.5 8.5 8.5

Depreciation 5.0 5.2 5.6 1.1 4.2 4.2 4.2 4.2 4.2

Free Cash Flow 1,192.5 1,388.6 1,345.0 1,470.2 1,524.0 1,597.2 1,673.8 1,754.2 1,838.3

DCF Analysis

DCF Valuation - WACC

13*Bloomberg, Time Warner 10-K, see appendix for WACC calculation & assumptions

WACC: 4.89%

WACC: 4.45%

2016 2017 2018 2019 2020

Free Cash Flow 1,524.0 1,597.2 1,673.8 1,754.2 1,838.3

Discounted Cash Flows 1,452.9 1,451.7 1,450.5 1,449.2 1,448.0

Terminal Value 29,610.4

PV of Terminal Value 23,322.5

Enterprise Value 30,574.8

2016 2017 2018 2019 2020

Free Cash Flow 1,524.0 1,597.2 1,673.8 1,754.2 1,838.3

Discounted Cash Flows 1,459.1 1,464.0 1,468.9 1,473.8 1,478.7

Terminal Value 33,229.3

PV of Terminal Value 26,728.8


Comparables Analysis

14*Bloomberg

(in Millions of USD) Price as of Market Enterprise LTM EBITDA LTM EBITDA EV/EBITDA EV/Sales

Company Name Ticker 10/26/2016 Cap (millions) Value Revenue LTM 2016E Margin LTM 2016E LTM

Content Creation & Distribution

21st Century Fox FOXA 26.40 48,798.30 65,871.30 27,326.00 6,597.00 7,167.70 24.10 9.99 9.19 2.27

CBS Corporation CBS 56.56 25,198.00 33,431.00 14,303.00 3,302.00 3,448.00 23.10 11.44 9.69 2.34

ComCast CMCSA 61.88 148,038.50 209,357.50 78,623.00 26,045.00 26,436.30 33.10 8.07 7.92 2.66

LionsGate Media LGF 20.01 2,954.60 4,297.70 2,492.10 0.60 237.20 0.02 7,162.83 18.12 1.72

Charter Communications CHTR 249.25 77,578.70 139,226.70 13,653.00 4,816.00 13,556.10 35.30 29.97 3.48 10.20

Viacom Inc. VIAB 37.75 15,030.13 27,466.13 13,050.00 3,469.00 3,014.20 26.58 7.92 9.11 2.11

Walt Disney Co DIS 93.49 151,678.21 170,845.21 56,002.00 16,901.00 17,390.19 30.18 10.10 9.82 3.05

Average 77.91 67,039.49 92,927.93 29,349.87 8,732.94 10,178.53 24.63 12.91 8.20 3.48

Median 56.56 48,798.30 65,871.30 14,303.00 4,816.00 7,167.70 26.58 10.05 9.15 2.34

Distribution: OTT

Netflix NFLX 126.97 54,338.00 55,369.00 8,176.50 344.60 588.20 4.20 160.69 94.14 6.77

Implied Valuation

Key Assumptions:-Exclusions:

→ Netflix: EV/EBITDA significantly different than industry average based on low EBITDA

→ Lionsgate Media: A tough year resulted in posting almost negative EBITDA

15*Bloomberg

Industry Average

→ Twenty First Century Fox → CBS Corporation → Comcast → Charter Communications → Viacom, Inc → Walt Disney Co

HBO (in Millions)

EBITDA EV/EBITDA Implied EV

2,018 8.3 16,749.4

2,018 13.9 28,050.2

Range 8.3 - 13.9 16,547.6 - 28,050.2

Precedent Transaction Analysis

16

Precedent Transactions (millions USD) Multiples

Date Target Acquirer Industry Value TV/EBITDA TV/Sales42442 NBC Universal LLC Comcast Corp Television 16700 8.98x 0.79x

42444 Brighthouse Networks LLC Charter Communications Inc. Cable TV 10400 8.98x 0.79x

42716 LucasFilm Ltd LLC The Walt Disney Co Motion Pictures &Video Production 4050 63.14x 7.63x

42598 DreamWorks Animation LLC Comcast Corp Motion Pictures &Video Production 3797.2 19.98x 3.28x

42445 Legendary Entertainment Dalian Wanda Group Motion Pictures &Video Production 3500 N/A 7.63x

42717 Belo Corp. TEGNA Inc Television 2028.04 11.62x 4.29x

42501 CORE Media Group Apollo Global Management LLC Motion Pictures & Video Prodution 500.6 8.2x N/A

42473 Fisher Communications Sinclair Broadcast Group Broadcast/TV 373.6 17.1x 2.1x

Median 3500 14.36x 3.79x

Mean 3521.35 21.5x 4.29x

High 2028.04 63.14x 7.63x

Low 373.6 8.2x 0.79x

Precedent Transaction Analysis

17

● The precedent transaction is another useful valuation metric because each acquisition has a premium built into the price of the deal

● To create a list of precedent transactions we pulled transactions based on criteria of industry, size, M&A transaction type, etc., and generated a list from the past 5 years

● The transactions on the previous slide are all relevant to the TV production and broadcasting industry

● The acquisition of LucasFilm has a high EV/EBITDA multiple which may be caused by Walt Disney Co.overpaying and stands as an outlier in the industry

Implied Valuation Range (millions USD)

Method As of 2016 Multiple Range Implied EV

EV/EBITDA 2018.00 14.36x -21.5x 28978.48 - 43393.73

EV/Sales 5875.50 3.79x - 4.29x 22238.77 - 25186.31

Buyer Recommendation for Acquisition of HBO

Section 4

Duff & Phelps 18

What is a Strategic Buyer? Operating companies that are looking to acquire another company for a specific

purpose of identifying synergies for their products or services, which will create incremental, long-term shareholder value

Strategic Buyers need to evaluate how well the acquisition will tie in with their existing business unit

Will usually get more value out of the acquisition than the intrinsic value of the company

In turn, they are more willing to a pay a premium for the target company to make sure the deal goes through

Also known as Synergistic Buyers

Examples of Strategic Buyers A direct competitor Company in the same industry, but in a different region that wants to expand and

it will be cheaper for them to acquire the target rather than start from the ground up

A company in an unrelated business that wants to acquire the strengths of the existing business

i.e. a food manufacturer acquiring a supply chain and logistics firm to realize operational synergies

19

Why Choose a Strategic Buyer?

“Strategic Buyers need to evaluate how well the acquisition will tie in with their existing business unit”

The subscription-based model of HBO is increasingly popular and relevant in today’s media sphere making it an attractive entity for a number of conglomerates looking to expand

HBO international operations would complement a company’s global expansionary plans

“Will usually get more value out of the acquisition than the intrinsic value of the company”

HBO would not likely be sold off by the parent company for a very long time after acquisition meaning the buyer would be looking to capitalize long-term on HBO’s strong growth forecasts and rising popularity

The increasingly narrow pool of competitors in the industry leads to a fiercer M&A environment thus placing a higher intangible value on ownership of HBO

20

❖ Why would a strategic buyer make sense in the case of HBO?

What is a Financial Buyer?

• A buyer that is interested in the return they can achieve by buying the business i.e. cash flow generated and/or future exit opportunities

– goals may include growing cash flow through revenue enhancement, expense reductions, or creating economies of scale by buying other similar companies

– exit plans may include an IPO or selling company in the future

• What does a financial buyer look like?– typically a private equity firm, venture capital firm, hedge fund, or high net worth

individuals– seeking to realize a return on investments within 5-7 years– often highly leveraged, up to 80% debt to finance the acquisition– looking to buy exactly what the company has to offer (expected future earnings as

they are perceived to exist at the time of the acquisition)– more sensitive to business cycle risk than strategic buyers– will already be thinking about exit strategies before making decision to invest– typically move through the acquisition faster being that they are in the business of

making acquisitions

21

Why Choose a Financial Buyer?

• “looking to buy exactly what the company has to offer (expected future earnings as they are perceived to exist at the time of the acquisition)”

– subscription revenue has been steadily increasing and is forecasted to increase in the years to come

– free cash flow has been steadily increasing and is forecasted to increase in the years to come

• “will already be thinking about exit strategies before making decision to invest”

– media industry is increasingly conglomerating which signals an environment conducive to M&A’s

– PE firm could feasibly obtain HBO, hold as subscriptions continue to grow (as forecasted), then sell to media conglomerate (think “buy low, sell high”)

22

❖ Why would a financial buyer make sense in the case of HBO?

Potential Buyers• The potential buyer for Home Box Office (HBO) will need to have the

following characteristics:

– General interest (financially and strategically) in the operations of HBO» Desire to add a premium content provider» Build on loyal subscription base

– Strategic Buyer will realize synergies» Improve bottom line» Vertically integrate existing services with HBO’s ready to go content

production

– Financial Capacity» Purchase: Ability to buy outright or ability to secure financing in

the case of a leveraged buyout» Operations: Due to the substantial upfront investment required for

taking on the content creation segment of HBO, the buyer must have stable cash flows in order to maintain this portion of the business

23

Interest

Strategic Synergies

Financial Capacity

Netflix

24

• With the actual HBO NOW subscriber count 20-60% less than expectations from Wall Street, Netflix proposes a unique opportunity for HBO as an already established OTT company

• Additionally, Netflix has been targeting the premium network window for several years. Past deals include

– Securing Relativity Media film rights– Renewing its deal with DreamWorks Animation in

2016– Securing Walt Disney Co. film rights beginning with

those released in 2016– Rights to stream Starz films from 2008-2012

• Therefore, acquiring HBO would present Netflix with the opportunity to expand its offerings to customers in several ways:

– HBO has extended its deal with Universal Studios and Fox until 2021 and 2022, respectively

– HBO’s original content, including the hit series Game of Thrones

Apple

Duff & Phelps 25

• Apple has been looking to get into the content game for quite some time, and they have two ways of going about that

• Start ground up production• Buy a company who is already good at it

• Apple has worked with HBO in the past on its stand alone streaming service

• Apple has a platform ready to deliver HBO programming to consumers

• Vertically integrate content creation with existing products and future developments

• Has shown a willingness to acquire companies i.e. Beats by Dre

• Huge cash balance and ability to pay a premium for HBO• Apple's entry into TV or film production would add yet another

threat to the traditional cable bundle that has long been the backbone of media conglomerates. Young consumers are turning away from the expensive Pay-TV packages in favor of online, on-demand entertainment options — and Apple's arrival could further accelerate that trend

-“In terms of owning content and creating content, we have started with focusing on some original content, as you point out; we’ve got a few things going there that we’ve talked about. And I think it’s a great opportunity for us, both from a creation point of view and an ownership point of view. And so, it is an area that we’re focusing on.” CEO Tim cook when asked directly about apple developing its own content

Duff & Phelps 26May 2, 2023

Final Sale Recommendation

• Strategic Acquisition – Apple • Strategic Acquisition – Netflix

• Will pay premium for HBO to quickly get into the content world

• Recognizes synergies and will be able to create immense value with the loyal base of HBO and Apple

• Break into a new market and disrupt the entertainment industry

• Leadership has spoken about producing original content

• Large amount of cash on hand to be ensure successful transaction

• Desire to own more premium content

• Realize more synergies because both have production, similar delivery method, and loyal subscriber base

• Unwilling to afford the premium for HBO

• Not enough cash on balance sheet to make the transaction successful

Lawsuit & Damages against Bit Torrent

Section 5

Duff & Phelps 27

What is Bit Torrent?

• Bit Torrent originated in the early 2000’s• defined as a method of downloading files using a peer-to-peer system

– distributes the sharing of files across all users who have downloaded or are in the process of downloading

– you do not need to have the file entirely downloaded in order to start sharing it with other users

– this idea of part-ownership between innumerous users is precisely what makes Bit Torrent so fast and popular

*Nolo 28

Punishing Bit Torrent users

• Bit Torrent users can only initially be identified by their Internet Protocol (IP) address– an IP address is not a person - however it is a good clue as to who was actually using

that address– the identity of the owner of the IP address will remain confidential until such time that

the person contests the initial claim of illegal file-sharing by the plaintiff– an IP address is similar to a license plate on a car; you may not know who the driver is

but the license plate number can give you a good clue as to who the driver is

• So how is Bit Torrenting punished?– the Internet Service Provider (ISP) sends a letter to the IP address notifying them that

their IP address has been identified in an illegal file sharing network– the user can then decide to:

» ignore the notice, in which case the court automatically rules in favor of the company suing

» request that the court quash or dismiss the case, usually with the help of a lawyer» attempt to settle with the company and pay any damages

– judges are starting to evaluate piracy cases with more scrutiny than ever before making it harder for companies to sue and for file sharers to walk away unharmed

*Nolo 29

Previous file sharing cases

• IO Group v. Does 1-244

– two defendants were accused of participating in a peer-to-peer file sharing scheme– the plaintiff owned and operated a monthly subscription-based website from which a

motion picture was illegally downloaded and distributed– the defendants were ordered to pay $20,000 to the plaintiff

• U.S. Copyright Group

– the group was targeting nearly 25,000 Bit Torrent users who illegally downloaded the motion picture “The Hurt Locker”

– sought between $1,000 and $3,000 from each user who illegally downloaded a copy

• “Dallas Buyers Club”

– company sued 31 people in Texas for using Bit Torrent to download the movie illegally– sought between $2,000 and $5,000 from each illegal user

*Nolo *Philadelphia Law 30

Recommendation

• We recommend that HBO pursue two courses of action:– seek damages from individual IP addresses– seek punitive damages from Bit Torrent for facilitating illegal downloads

• Individual IP addresses– each download can be traced back to an IP address and subsequently an end user– this person should be fined compensatory damages for the cost of a yearly subscription

i.e. the cost of a monthly subscription multiplied by twelve months in a year» although past cases have sought a flat rate for damages in the range of $1,000 -

$5,000 per user for similar situations, the costs associated with producing a movie and producing an episode of a show cannot be considered equal thus justifying the lower rate per IP address

• Bit Torrent– the entity that is Bit Torrent should be fined for punitive damages– this damages number cannot be more than 9x the cost of compensatory damages– HBO should seek punitive damages to the fullest extent based on the unparalleled

scale to which their content was illegally downloaded

*Nolo *Philadelphia Law 31

AppendixSection 6

Duff & Phelps 32

Discounted Cash Flow Analysis - Pro Forma

33

Actual Forecast

2012 2013 2014 2015 2016 2017 2018 2019 2020

Subsciption 4,010.0 4,231.0 4,578.0 4,748.0 4,952.8 5,166.5 5,389.3 5,621.8 5,864.3

Content and Other 676.0 659.0 820.0 867.0 922.7 981.9 1,044.9 1,112.0 1,183.3

Total Revenues 4,686.0 4,890.0 5,398.0 5,615.0 5,875.5 6,148.3 6,434.2 6,733.8 7,047.7

Programming Costs:

Acquired Films & Syndicated Series 885.0 894.0 1,007.0 1,003.0 1,081.3 1,131.5 1,184.1 1,239.2 1,297.0

Originals and Sports 856.0 856.0 960.0 1,032.0 1,057.0 1,106.1 1,157.5 1,211.4 1,267.9

Total Programming Costs 1,741.0 1,750.0 1,967.0 2,035.0 2,138.3 2,237.6 2,341.6 2,450.6 2,564.9

Other Direct Operating Costs 659.0 618.0 741.0 776.0 797.3 834.4 873.1 913.8 956.4

Costs of Revenues 2,400.0 2,368.0 2,708.0 2,811.0 2,935.6 3,071.9 3,214.8 3,364.4 3,521.3

Gross Margin 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5

Gross Profit 2,286.0 2,522.0 2,690.0 2,804.0 2,939.9 3,076.4 3,219.5 3,369.3 3,526.4

34

Actual Forecast

2012 2013 2014 2015 2016 2017 2018 2019 2020

Gross Profit 2,286.0 2,522.0 2,690.0 2,804.0 2,939.9 3,076.4 3,219.5 3,369.3 3,526.4

SG&A 632.0 705.0 746.0 831.0 831.6 870.2 910.6 953.0 997.5

Gain on Operating Assets -113.0

Asset Impairment 4.0

Restructing & Severance Costs 15.0 39.0 63.0 0.0 29.3 29.3 29.3 29.3 29.3

Depreciation 85.0 91.0 77.0 81.0 83.5 83.5 83.5 83.5 83.5

Amortization 7.0 9.0 14.0 14.0 11.0 11.0 11.0 11.0 11.0

Operating Expenses 739.0 731.0 904.0 926.0 955.3 993.9 1,034.4 1,076.8 1,121.2

Operating Income 1,547.0 1,791.0 1,786.0 1,878.0 1,984.6 2,082.5 2,185.1 2,292.6 2,405.2


35


Actual Forecast

2012 2013 2014 2015 2016 2017 2018 2019 2020

Operating Income 1,547.0 1,791.0 1,786.0 1,878.0 1,984.6 2,082.5 2,185.1 2,292.6 2,405.2

Segment EBITDA 1,639.0 1,891.0 1,877.0 1,973.0 2,079.1 2,177.0 2,279.6 2,387.1 2,499.7

Less: Corporate SG&A 59.3 75.1 92.4 17.6 61.1 61.1 61.1 61.1 61.1

EBITDA 1,579.7 1,815.9 1,784.6 1,955.4 2,018.0 2,115.9 2,218.5 2,326.0 2,438.6

Taxes 399.2 458.9 451.0 494.1 509.9 534.7 560.6 587.8 616.2

Net Income 1,180.5 1,357.0 1,333.6 1,461.3 1,508.0 1,581.2 1,657.9 1,738.2 1,822.4

Time Warner Effective Tax Rate 2012 2013 2014 2015 Average

Income from continuing Operations Before Tax Rate 4033 4968 4679 5446

Net Income 2922 3691 3827 3833

Effective Tax Rate 27.5% 25.7% 18.2% 29.6% 25.3%

*Time Warner 10-K

36


Actual Forecast

2012 2013 2014 2015 2016 2017 2018 2019 2020

Net Income 1,180.5 1,357.0 1,333.6 1,461.3 1,508.0 1,581.2 1,657.9 1,738.2 1,822.4

Depreciation 85.0 91.0 77.0 81.0 83.5 83.5 83.5 83.5 83.5

Segment CapEx 65.0 45.0 58.0 68.0 59.0 59.0 59.0 59.0 59.0

Allocated Portion of Corporate Expenses:

CapEx 8.0 14.4 7.6 4.1 8.5 8.5 8.5 8.5 8.5

Depreciation 5.0 5.2 5.6 1.1 4.2 4.2 4.2 4.2 4.2

Free Cash Flow 1,192.5 1,388.6 1,345.0 1,470.2 1,524.0 1,597.2 1,673.8 1,754.2 1,838.3

Discounted Cash Flow Analysis - WACC Calculation

37*Bloomberg & Time Warner 10-K

Capital Structure Cost of Capital Cost Of Debt

Market Cap 67,759.16 rf 1.83% Pre-tax rD 2.95%

Net Debt 24,471.00 Beta 0.60 Tax Rate 25.30%


Mkt Risk Premium Range 5.75% - 6.75%

After Tax rD 2.20%

Equity Weight 73.47%

Debt Weight 26.53% rE 4.81%

WACC Range 4.45 - 4.89%

Comparables Analysis - Beta Estimate

38

Market Capitalization Total Debt Enterprise Value Market Leverage Levered Beta Unlevered Beta Relevered Beta

Content

Viacom, Inc. 15,030.13 12,365.00 27,395.13 45.14% 1.74 0.95 0.64

Twenty First Century Fox, Inc. 50,252.95 19,488.00 69,740.95 27.94% 1.59 1.15 0.77

CBS Corporation 24,859.18 8,957.00 33,816.18 26.49% 1.68 1.24 0.83

ComCast 148,038.50 60,428.00 208,466.50 28.99% 0.99 0.70 0.47

Lions Gate Entertainment Corp 2,954.60 1,009.83 3,964.43 25.47% 0.88 0.66 0.44

Charter Communications, Inc. 77,578.70 61,996.00 139,574.70 44.42% 1.17 0.65 0.44

Average 53,119.01 27,373.97 80,492.98 33.07% 1.34 0.89 0.60

Median 50,252.95 19,488.00 69,740.95 28.99% 1.34 0.89 0.60

Distribution: OTT

Netflix 54,338.00 2,373.97 56,711.97 4.19% 0.8 0.77 0.51

*Bloomberg & Yahoo Finance

youniversity deal cahllenge 2017 (1)

Documents