Who Will Buy Starz (STRZA)?

Financially, Amazon would have no problems pulling off the acquisition. It currently has more than Starz’s enterprise value in short-term investments, to go along with $8 billion more in cash, $4 billion in annual operating cash flow and just $3 billion in long-term debt. Also, its market valuation is so high there would be no problem with paying in stock for the acquisition.

Like Amazon, DIRECTV (NASDAQ:DTV) has had a failed experiment at producing an original series. I haven’t actually seen Rogue, and I literally don’t know anybody who has even heard of it. Starz’s content and in-house talent would exponentially increase the quality of any originals DirecTV wanted to experiment going forward.

Not only would DIRECTV (NASDAQ:DTV) gain superior original programming and a power over its competitors by buying Starz, it would be merging with like-minded management from the John Malone tree. Like Starz, DirecTV was spun-off by a John Malone holding company. It is likely that of the three companies mentioned here, DirecTV would have the quickest and easiest transition following a merger.

Financially, the deal will be tough to pull off for DirecTV. Though the company has $1.6 billion in cash and a very predictable $5.5 billion annual operating cash flow stream, it already has negative shareholder’s equity over $6 billion.  In addition it only trades for 13.7 times its earnings and management is not willing to dilute shareholder value. DirecTV’s ability to pull off a $3 billion acquisition will hinge completely on its ability to increase its massive debt load to over $21 billion at a reasonable interest rate.

Conclusion

Starz is a cash cow with several valuable assets in content and talent that keeps churning out new content, yet it still trades for just 10 times its cash flow. It is extraordinarily likely that it will be bought out within the next year or so. Hopefully, for both its shareholders and the shareholders of the acquiring company, either Netflix, Amazon or DirecTV will be the one doing the buying.

The article Who Will Buy Starz? originally appeared on Fool.com and is written by Mike Price.

Mike Price owns shares of Netflix and Starz. The Motley Fool recommends Amazon.com, DirecTV, and Netflix. The Motley Fool owns shares of Amazon.com and Netflix. Mike is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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