From Comcast to Viacom, Media M&A Takes More Twists
(Bloomberg Gadfly) -- It’s yet another interesting day for media megamergers, with some developments that make you go “hmm.” Here’s how to think about the latest twists and turns—and they most certainly won’t be the last.
First, Comcast Corp. firmed up an offer to buy Sky Plc, upsetting an already messy and complex situation for Walt Disney Co. and Rupert Murdoch’s 21st Century Fox Inc., Sky’s other bidding group. But curiously, Comcast didn’t make a knockout bid, leaving the cable giant’s true motivations in question, as my colleague Chris Hughes explained earlier. It seems to me that Sky would be a nice-to-own set of assets for Comcast, but not necessarily any nicer than forcing Disney and Fox to pay up for them.
Comcast’s 12.50 pound-a-share cash bid—which equates to 22 billion pounds ($30.7 billion)—is a touch above the 10.75 pound-a-share offer that Fox made back in December 2016. The Fox offer has been held up by U.K. competition regulators concerned about Murdoch’s potential degree of influence over British media. Still, Comcast’s bid is below Sky’s current share price, making it barely more appealing and hardly unbeatable for the Disney-Fox duo. Comcast CEO Brian Roberts is starting to look like the Carl Icahn of the cable world, causing everyone to wonder: Is his offer real? Or is it more of a tactic? Icahn, the shrewd corporate-raider-turned-activist-investor, is known to occasionally offer to back-stop takeover auctions in hopes of drumming up interest, but then not following through with a deal.
As I’ve written before, there’s plenty of reason to believe Disney prevails, though the Sky offer will need a bump. Remember, the potential Sky purchase is part of Disney’s $66 billion deal to buy the majority of Fox’s TV and film assets and take on Netflix Inc. in online video entertainment (the following chart by Gadfly’s Elaine He breaks it down). Between Disney and Comcast, Disney has the stronger balance sheet, the greater need to get this specific transaction done and the ability to use its goodwill with its investor base to do an all-stock deal with Fox.
Comcast shares have fallen about 10 percent since it proposed buying Sky in late February. A deal would mean higher leverage and less room for buybacks and investing in new initiatives such as Xfinity Mobile, at a time when rivals are scaling up. AT&T Inc. is trying to buy Time Warner Inc. to become a more powerful pay-TV and wireless-service provider, while Charter Communications Inc. is also working on a mobile expansion. Plus, it’s not unthinkable that someone scoops up T-Mobile US Inc. or the ever-struggling Sprint Corp.—if those two don’t merge themselves.
Another media deal that’s in motion—and with no shortage of drama—involves Viacom Inc. and CBS Corp. Viacom, the parent of MTV and Nickelodeon, has had a rough go of it the last few years. But under CEO Bob Bakish, it’s made progress, and Wednesday’s earnings report will only serve to help the company in negotiations with its sister company CBS, which continues to play hardball. Viacom’s second-quarter earnings beat expectations, as its Paramount film studio managed to turn a profit and the international TV networks division posted a 9 percent increase in sales, after removing the favorable impact of currency exchange rates.
The sticking point appears to be CBS CEO Les Moonves’s desire to choose his own team to run a combined company, almost a quid pro quo for having to take Viacom—a business long seen as a problem child of the Redstone empire—under his wing. But CBS needs the scale, and shareholder Shari Redstone calls the shots. Given Bob Bakish’s previous work to expand Viacom’s international networks—the most promising piece of the company—and considering that his turnaround efforts since being promoted to Viacom CEO are beginning to bear fruit, it makes sense to make him Moonves’s lieutenant and help integrate the businesses.
We’ve arrived at the point where there’s a real urgency to combine CBS and Viacom, and Redstone seems to get that. Therefore, this deal should finally overcome its hurdles and get done. Meanwhile, I think Fox and Sky will end up in Disney’s embrace, T-Mobile and Sprint will join forces (regulators willing), and AT&T’s $109 billion merger with Time Warner just might survive court. This is the year that dramatically reshapes the media landscape. Whether that’s good for the rest of us is another story.
Tara Lachapelle is a Bloomberg Gadfly columnist covering deals, Berkshire Hathaway Inc., media and telecommunications. She previously wrote an M&A column for Bloomberg News.
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