Fitch: AMC acquisition of Chellomedia is strategically sound

Reuters

Oct 30 (Reuters) - (The following statement was released by the rating agency)

The pending acquisition of Chellomedia (the international content division of Liberty GlobalPLC ) enables AMC Networks (AMCX) to expand its international distributioncapabilities and grow its international business, according to Fitch Ratings. The proposedtransaction is expected to boost AMCX's international revenue generation to approximately 25% oftotal revenues, providing business diversification that will strengthen the company's creditprofile.

International markets represent compelling revenue and cash flow growth for AMCX as the company capitalizes on its global brands and leverageable content. The demand for high-quality content by international broadcasters and pay-TV providers positions media companies like AMCX to further monetize their content in international markets.

This transaction provides AMCX with sufficient international scale and scope, affording the company a wide spectrum of options regarding its international distribution strategy. Chellomedia's television channels and cable networks - most of which are movie and entertainment networks - reach approximately 390 million households in 138 countries.

AMCX can determine how to best monetize its increasingly popular original content either through distribution on its own networks around the world or through licensing agreements with international networks. Distributing original content on its own networks enhances the value of the brands and the networks, which will position AMCX to grow international affiliation fee and advertising revenues.

Meaningful execution risks are associated with international expansion, including differences in entertainment consumption trends, political instability, uncertain or less developed regulatory regimes and variations in competitive dynamics (state-owned competitors). However, Fitch believes this risk could slow growth rates rather than pose significant operating pressures as AMCX's international exposure is relatively modest at below 30%.

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