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Despite Missing Out On Gawker, Citi Still Buying J2 Global

Despite Missing Out On Gawker, Citi Still Buying J2 Global - j2 Global, Inc. NASDAQ:JCOM

According to Recode, Univision officially edged out its peers, including J2 Global Inc JCOM 0.44%'s unit Ziff Davis, in buying out Gawker's 7 media assets for $135 million. The results of Gawker's sale are not yet official, as a judge needs to sign off on the sale after hearing potential objections from debtors.

In a research report published Wednesday, Walter Pritchard of Citi Research is expecting the sale to pass, and Univision will win the coveted assets. Despite J2 Global losing out on the bidding process, the analyst reaffirmed a Buy rating on the stock with an unchanged $73 price target.

Justification For Buy Rating

According to Pritchard, J2 was expected to bid up to $110 million for Gawker's media assets and the company will receive a $2.5 million fee as part of the agreement of being the "Stalking Horse Bidder" in Gawker's bankruptcy process.

Pritchard acknowledged that J2 could have created earnings accretion through an acquisition of Gawker's properties; this would have only been possible "at the right price," and J2 showed "valuation discipline" by not bidding up an asset beyond the 20 percent return on invested capital (ROIC) threshold, which is consistent with its history.

Since J2 did not dish out capital in an M&A transaction, the company has "plenty of cash" to initiate a debt refinance deal. However, the analyst expects this action to be pushed out at least another quarter.

Bottom line, Pritchard continues to see opportunity for accretive and disciplined M&A activity in the future and this has historical been a "driver for the stock."

However, without the immediate catalyst of an acquisition of Gawker's assets and a debt refinance agreement, the analyst removed the stock from the Citi U.S. Focus List.

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DateFirmActionFromTo
Aug 2016CitigroupMaintainsBuy
Apr 2016CitigroupUpgradesNeutralBuy
Dec 2015JMP SecuritiesInitiates Coverage onMarket Outperform

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