Viacom Inc.’s share price up, set to buy Northern & Shell’s Channel 5 in a 450-million-pound deal to expand reach

According to a person familiar with the matter, who asked not to be identified because the deal is still private, Viacom Inc., which currently owns MTV and Comedy Channel, has reached an agreement with the Northern & Shell to acquire its Channel 5.

According to a publication in the Guardian newspaper, the deal is estimated to about 450 million pounds (759 million dollars) and may be officially announced today, along with the quarterly results report of Viacom Inc. This price amounts to about nine times the reported earnings of the UK broadcaster for 2013 before taxes, depreciation and amortisation.

The UK broadcaster Channel 5, is owned by Richard Desmond, the owner of Northern & Shell. The acquisition will make Viacom the first U.S. company that holds a U.K.’s public service broadcaster and it will also recover Mr. Desmonds initial investment more than fourfold. Channel 5 was acquired by Mr. Desmond from RTL Group SA four years ago at the price of 103.5 million pounds.

Moreover, the acquisition of the British Channel 5 is considered beneficial for the international expansion strategy of Viacom Inc., which is seeking various options for its television programming business. According to the person familiar with the process, the owner of the broadcaster, Mr. Desmond had also considered carrying out an initial public offering, instead of selling the broadcaster.

Viacom Inc. has been currently looking for further expansion in pay television business than in free-to-air channels like Channel 5. Nevertheless, it still maintains its connections with one of the biggest free-to-air networks – CBS. The company has reported pre-tax profits estimated to 2.4 billion dollars for 2013.
Viacom’s spokesman refused to provide any details when asked to comment on the rumours of the purchase. One of the spokeswomen of Northern& Shell did not respond to a request for comment sent by e-mail outside of normal business hours.

Viacom Inc. added 1.52% to close at 84.98 dollars per share yesterday, marking a one-year change of +28.95%. According to the information published on CNN Money, the 25 analysts offering 12-month price forecasts for Viacom Inc. have a median target of 94.00, with a high estimate of 105.00 and a low estimate of 80.00. The median estimate represents a +10.61% increase from the last price of 84.98.