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Ascent Media Update

December 5, 2010

Ascent Media (ASCMA) announced two separate agreements over the last two weeks to sell virtually all of the operations of their two main operating groups, Creative Services and Content Services. After the transactions are completed sometime during the first quarter of 2011 Ascent Media will be left with an even larger stash of cash and marketable securities. From the press releases related to the two transactions we estimate that when the transactions close ASCMA should have over $38.00 per share in cash and marketable securities, assuming they are able to use tax loss carry forwards to offset any capital gains.

The impact of the two transactions on book value is still unclear as no information was provided on gains or losses from the sales. At the end of the 3rd quarter, per-share book value stood at close to $41 and per-share cash at $26.30. Thus the combined book value of the two operating groups was approximately $14.70 per share, slightly more than the $13.00 per share ASCMA is receiving in cash. Though “substantially all operations” are being sold, it was not stated whether any assets are being retained after the two transactions. So we will not be sure of the impact on book value until fourth quarter results are reported.

It seems clear that management is looking to deploy Ascent’s cash hoard through acquisitions, most probably in the media-related area, though not necessarily in businesses related to their previous operations. You will remember that ASCMA made a bid for certain cable system assets earlier this year, a business not closely related to their then portfolio of businesses, but one well within the ken of director John Malone’s experience. The announcement on Dec 6 that the Justice Department and FTC have granted early termination of the Hart-Scott-Rodino waiting period for a transaction related to Monitronics International (home security) only confirms our suspicions. Time will tell. Meanwhile the cash hoard is building and the market is beginning to notice; the share price has finally moved up from the mid/upper 20’s to around $34 per share with the latest announcements and is now trading for just over 80% of stated book value and 88% of post transaction cash value. We find it still underappreciated and, with a value enhancing transaction, are looking for a target of $40 to $45 per share by year-end 2011.

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