Biz appetite for acquisitions under scrutiny
Subject to be examined this week at Goldman Sachs confabNEW YORK -- The current appetite for acquisitions -- or in their stead more stock buybacks and bigger dividends -- is expected to be a key focus at Goldman Sachs' 19th annual Communacopia conference, which runs Tuesday through Thursday in New York.
While corporate America has seen a slew of recent big acquisition announcements in other industries -- Dell, Intel, HP and IBM have made multiple and fairly large acquisitions this summer -- activity in media and entertainment has been more restrained, with notable exceptions.
-- Disney agreed to buy social gaming firm Playdom for at least $563.2 million after purchasing music games maker Tapulous.
-- News Corp. has offered to buy full control of U.K. satellite TV provider BSkyB.
-- Cable giant Comcast still is waiting for permission from regulators, expected late this year, to purchase NBC Universal.
Since most see the proposed BSkyB buy-in as a clarification of News Corp.'s ownership stake, that leaves Comcast-NBC Uni the only major deal of the past year.
Indeed, word about the Comcast-NBC Uni deal first got out nearly a year ago, and Wednesday, Comcast CFO Michael Angelakis and NBC Universal president and CEO Jeff Zucker are scheduled to appear at the Goldman gathering to perhaps offer updates.
Barclays Capital analyst Anthony DiClemente in a recent report was hopeful that, despite the looming Comcast-NBC Uni marriage, most media giants will focus on using strong balance sheets for stock buybacks and dividend payments rather than for acquisitions.
"The strength of media balance sheets in conjunction with slowing year-over-year revenue growth presents what may be a recipe for further acquisition activity," he said. "Will media conglomerates perpetuate their checkered history of growth-by-dilutive-acquisition? We are optimistic they will not, and that is one reason we like the stocks."
Especially since the 2008 financial crisis, many big media firms have been conserving cash for tough times, while also returning capital to shareholders. With stock markets still volatile, the economic outlook unclear and many still remembering failed mega-mergers of the past, most near-term M&A activity is expected to come in the form of takeovers of smaller digital firms, affordable international expansions or other extensions that don't break the bank.
"I wouldn't hold my breath for any transforming deals," Moody's analyst Neil Begley said. Most sector giants are "instead focused on smaller tack-on opportunities (less than $1 billion) and returning capital to shareholders."
He added: "Since stocks are moving sideways for almost everyone, this is also a less risky strategy for your average CEO."
Executives seem to concur.
CBS Corp. president and CEO Leslie Moonves and Viacom president and CEO Philippe Dauman, for example, have emphasized they expect no major deals.
"We prefer to build businesses (rather) than buying them," News Corp. president, COO and deputy chairman Chase Carey said at a recent investor conference.
What about BSkyB?
"This is a business we know well and have a strong belief in its long-term potential," he said. "The transaction will be earnings-accretive while at the same time achieving our strategic objectives of further increasing our profits generated for more stable subscription businesses and improving geographic diversification."
Stock buybacks are popular among cash-flush companies, but not everyone is a fan because they can be interpreted as a sign that reinvestment in the business brings less return, said Capital Management president Hal Vogel, a former entertainment analyst.
"I'm much happier with increased cash dividends," he said.
While few expect the sort of deal-making that was popular during the 1990s, Chris Marangi of Gabelli & Co. predicts a "fifth wave" of M&A activity across many industries that make up corporate America, including media.
The previous four waves were conglomerate deals in the '60s; the first buyout wave in the '80s; the tech/telecom deal boom of the '90s; and the second buyout wave, thanks to the availability of cheap debt, during the 2000s.
"Two events that may influence the level of activity are the conditions put on the Comcast-NBC Universal deal and the outcome of net-neutrality talks," Marangi said. "I would not rule out activity by private equity or by an entity outside the traditional mainstream, especially tech companies."
Industry heavyweights on the conference docket include Disney president and CEO Bob Iger on Tuesday; Carey, Moonves and Zucker on Wednesday; and Dauman, Lionsgate vice chairman Michael Burns and Liberty Media president and CEO Greg Maffei on Thursday.
One of the more unusual guests is Relativity Media CEO Ryan Kavanaugh, who this year told Bloomberg that his firm could eye an initial public offering down the line.
Paul Bond in Los Angeles contributed to this report.