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CKX Sale Price, Not Cash Flow, Is Proper Valuation
Television ratings go up and down, even for the most successful programs. This complicates how to value a production company's worth if that company is sold. Delaware Court of Chancery Vice Chancellor Sam Glasscock III, breaking from that court's tradition of using discounted cash flow to determine a company's value, has ruled that the $509 million sale price for entertainment content provider CKX Inc. was the most relevant available evaluation method because no comparable transactions or reliable cash-flow projections existed. Huff Fund Investment Partnership v. CKX Inc., 6844.
CKX (today known as CORE Media Group), a Delaware corporation headquartered in New York, has owned the rights to several top entertainment properties, including 80% of the image rights to Muhammad Ali and 85% of the rights to the name, image and likeness of Elvis Presley and the operations of Graceland. (In November 2013, Authentic Brands Group purchased the Elvis Presley properties.) The company also owns an entertainment agency that represents celebrities such as Robin Williams, Billy Crystal and Woody Allen. Most importantly, it owns the majority of the rights to the television programs American Idol, So You Think You Can Dance and Pop Idol, the British counterpart to American Idol . According to court papers in the case over valuation of the company, American Idol was CKX's most valuable property, at one point accounting for 60% to 75% of CKX's cash flow. The program was also Fox Network's top-rated show, though ratings had declined.
After CKX was put up for sale, an affiliate of Apollo Global Management LLC submitted a bid to purchase the company for $5.50 per share, while a second suitor, identified in court documents as Party B, offered a $5.60 per share purchase price. Although Party B offered the higher purchase price, CKX's board selected the Apollo offer because its financing was more secure.
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