According to S&P Global Market Intelligence estimates, the group of 12 companies shown below could generate almost $7 billion in an 84 MHz clearing scenario, or up to $13 billion in a lofty 120 MHz scenario – if the execution of the auction aligns with the FCC’s vision.
The FCC has maintained that as much as 126 MHz of U.S. spectrum can be cleared nationwide from TV stations either going dark or selling part of their individual spectrum. The initial FCC target has been around 100 MHz of spectrum cleared from participating TV stations in the reverse auction and at least 80 MHz of spectrum cleared to meet the hoped-for demand from wireless company bidders in the forward auction. It’s possible the eventual clearing result could come in below that 80 MHz level, which would be a disappointment to TV station sellers in the auction given that there would be fewer stations needed and downward pressure on station selling prices.
Analysis shows that Univision Communications Inc., which has frequently stated its interest in auction participation, has the highest estimated potential auction proceeds based on our assumptions at nearly $2.47 billion and 23 stations likely to be tendered or part of channel share arrangements under the high-end 120 MHz clearing level. At the 84 MHz level that potential take drops to $1.31 billion, as the overall demand would be lower and the total number of stations needed fewer. At the lofty 120 MHz level, Univision is followed by Comcast Corp. at $2.21 billion, Twenty-First Century Fox Inc. at $2.13 billion and CBS Corp. at $1.86 billion.
While some other publicly traded groups like Sinclair Broadcast Group Inc. and Media General Inc. have lesser amounts, their potential take is larger than for some others in terms of a per-share premium. For example, for Sinclair, the potential after-tax value at 120 MHz is estimated at $10.87, which is a 34% premium over the company’s closing price of $31.53 on April 6 (During an August 5 conference call to discuss second-quarter earnings, Sinclair intrigued investors by observing that it had the opportunity to relinquish station licenses with an aggregate value of approximately $2 billion in the FCC spectrum incentive auction with little effect on cash flow, based on information released to date from the FCC). For CBS, on the other hand, our calculated after-tax value per share is $2.71, or a 5% premium as of April 6.
Our estimates put Tribune Media Co. at more than a $600 million take at 120 MHz or just $237.3 million at 84 MHz. Tribune executives have told investors that the company has 10 stations in nine of the top 10 most valuable spectrum markets, and that it would actively participate in what management hoped would be a robust auction. Some groups, such as TEGNA Inc., have publicly acknowledged that their opportunity lies more in channel-sharing with other partners than in outright monetization, making it unsurprising that it falls to the bottom of our table.
The appetite of buyers to pay for 600 MHz spectrum licenses in the forward auction is still unknown, although the list of potential bidders that the FCC issued March 18 contained 104 names, including all the usual suspects – AT&T Inc., Verizon Communications Inc. and T-Mobile US Inc. – as well as a number of newcomers. All else being equal, carriers do need spectrum and should be highly interested. Estimates for how much the auction may raise have ranged from $15 billion to as high as $85 billion, with recent Wall Street estimates coming in at $25 billion to $35 billion.
Station owners on March 29 submitted their confidential binding bids for auction participation. The FCC has said it expects to announce the initial clearing target and band plan three to four weeks after that initial commitment deadline, which will be followed by the start of the mock auctions.