Looking Closely at the Outdoor Channel Holdings, Inc. (OUTD) Merger

UTR Disagrees

Regarding the sale, UTR commented in its letter to the Outdoor Channel’s board of directors: “Given its market leadership position and status as the “Tiffany” network in the space, the Company possesses significant inherent value, thereby providing it with considerable leverage in maximizing shareholder value through a transaction or other strategic alternative.” However, UTR thought that Outdoor Channel had a bad deal with a flawed sale process and poor terms. UTR said that when investors bought Outdoor Channel’s shares directly, they were investing in a pure-play broadcasting network business that had an implied target price of Noble Financial of more than 21x EV multiple. With the InterMedia merger deal, investors would be required to take stub stocks in a business with huge stakes in the shrinking publishing business that normally valued at only around 5x EV/EBITDA.

Foolish Bottom Line

Indeed, the newly combined company would not be a good investment for investors. With the lowest operating margin compared to its peers, I think a 15x EV multiple valuation could be considered high for Outdoor Channel. Existing shareholders might be better off taking cash for selling their Outdoor Channel stocks. As Viacom has the lowest valuation and the best upside potential among the three, Viacom looks the most attractive among the three.

The article Looking Closely at the Outdoor Channel Merger originally appeared on Fool.com and is written by Anh HOANG.

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