Rogers acquisition of Score Media makes sense, says Byron Capital analyst Goff

There is no truth to the rumour that Score Media CEO John Levy will be investing his newfound wealth in Cantech Letter. Levy today sold his company to Rogers Communications for $167-million.

After a flurry of speculation that sent shares of Score Media soaring Friday, Rogers Communications (TSX:RCI.B) today confirmed it will acquire all outstanding shares of the company, including the Score Television Network and related television assets, for $167-million.

Interestingly, the pickup doesn’t include theScore’s digital media business, including theScore website and mobile applications. Those assets will be spun out to existing shareholders, while Rogers will retain a 10% interest and have access to the technology.

“We continue to pursue opportunities to engage, expand and enhance the experience for sports fans. Rogers Media is on a growth trajectory and this builds on our momentum of delivering world-class sports content anywhere, any time, on any platform,” said Rogers Media President Keith Pelley, adding: “TheScore is a tremendous sports service that offers a distinct flavour of premium, niche programming that fits squarely within our strategy of delivering highly sought-after content to Canadians.”

Byron Capital analyst Rob Goff says the move makes sense for several reasons. First, he says, sports content is naturally suited to live viewing, and therefore provides a hedge against cord cutting/cord shaving to Rogers cable business. Also, points out Goff, despite recent troubles, Score has a long history of growing its advertising revenue base. The Byron Capital media analyst adds that the software development licensing agreement with Score Digital amounts to a white label version of ScoreMobile for Rogers customers in Canada. In a research update to clients today, Goff maintained his BUY rating and $44 target on Rogers Communications.

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With 6.6-million subscribers, theScore is It is Canada’s third-largest specialty sports channel, behind TSN and Rogers Sportsnet. Score Media has grown its revenue from $36.3-million in 2008 to $47.4-million fiscal 2011.

Goff says Rogers could potentially negotiate a better deal than the $.175 cents per subscriber Score Media currently commands, noting that a nickel increase in this number could translate into $3.3 million in incremental EBITDA. He also like the deal because there are clear duplicate functions that can be eliminated to drive cost synergies.

Shares of Rogers on the TSX closed today up .2% to $40.15.

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