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Time Warner Inc (TWX) & CBS Corporation (CBS): Is A Mega-Merger Possible?

Time Warner Cable Inc (NYSE:TWC)Consolidation in the media business isn’t new, and it’s not stopping either.

A recent report hints at a merger between media empire Time Warner Inc (NYSE:TWX) and CBS Corporation (NYSE:CBS). In truth, such a deal makes sense–combining a content giant like Time Warner Inc (NYSE:TWX) with a distribution specialist like CBS Corporation (NYSE:CBS) is a natural fit. If consummated, it would also be a sign of the changing global media landscape.

The fact is that technology is changing the way Americans – and the rest of the world – consume television-style entertainment. Streaming media is becoming a significant distribution channel and ad-supported shows are finding it more challenging to demand top dollar. This is leading to more original programming, either starting online or finding a market outside of broadcast television. If the Time Warner Inc (NYSE:TWX) and CBS Corporation (NYSE:CBS) merger actually comes about, it shouldn’t surprise anyone.

It’s scary out here!

Nothing is scarier to the markets than when an established industry – one that makes a lot of money – suddenly finds itself on shifting sands. It tends to frighten off investment dollars because those dollars were looking for a solid and predictable return. The change in television is causing this phenomenon right now. CBS Corporation (NYSE:CBS), for instance, is seeing an EPS ($2.48) at the lower end of its sector. Ditto its net profit margin (11.85%). While it’s not a terrible stock, it’s not one of the best in the television industry. There’s still a lot to like about it, there’s just more to like about its competition.

Time Warner Inc (NYSE:TWX), on the other hand, has shown stronger growth – 63.25% in share growth over 12 months – as well as a higher EPS. However, its net margin is lower than the industry average at 10.50%. The two companies could truly benefit from each other. With Time Warner Inc (NYSE:TWX) producing content – and already producing shows in partnership with CBS Corporation (NYSE:CBS) – and CBS handling distribution, there’s a chance for growth here.

This is one of the few times where an investor can actually take advantage of synergy.  It’s more than a buzzword thrown around by consultants.  In this case it means that both firms can come together in a marriage of equals to create greater profit – and therefore share growth – than either could do alone.

It’s not like this is the first time this has happened

Some archrivals of both Time Warner Inc (NYSE:TWX) and CBS Corporation (NYSE:CBS) have been involved with this sort of merger, both in the distant and not so distant past. So it’s not like CBS and Time Warner would be breaking new ground here.

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