Following up on the Friday news of Sinclair Broadcast Group buying 21 regional sports networks, the company's stock rocketed up 27% in early Monday morning trading.
Sinclair is buying 21 regional sports networks (RSNs) and the Fox College Sports network from Walt Disney in a deal totaling $10.6 billion, which includes $1 billion of equity held by teams in several of the RSNs.
The deal does not include the YES Network, the most valuable of these assets, according to analysts.
Those sports networks were acquired by Disney as part of its $71.3 billion deal for half of 21st Century Fox TV and movie businesses.
Sinclair’s stock was up 27% to $56.99.
Zack Silver, media analyst of B. Riley FBR, upgraded the stock to a “buy” on Monday. The price for the deal, he says, is modest given the return in revenues in the near term.
“Given that Sinclair paid slightly below 6x [future cash flow] for the portfolio... [it] should be able to produce meaningful cost and revenue synergies by pairing these RSNs with its existing TV stations and networks.”
But longer term, Silver has concerns: “We remain cautious in general on the long-term viability of most RSNs — seeing continued declines in pay TV [subscribers] and rising content costs driving gradual margin compression over time.”