Going private a way of life in '06

Cablevision, EMI, Lionsgate might be among deals next year

This year saw some big media and entertainment companies go private — usually with the help of private-equity groups — in some of the industry's highest-profile deals ever.

While more such pacts are expected in 2007, many on Wall Street ex-pect fewer spectacular deals, arguing that some of the key properties already are off the market.

"Private-equity guys usually look for a big acquisition that is worth their while and that gets them a good payout," said Hal Vogel, president at Vogel Capital Management.

"It's getting tougher for them because investors get smarter and want more money, so it's tougher for PE firms to get their payouts."

Overall, Vogel predicts that "there will still be quite a few deals but fewer than before."

Among big sector players that were or are in the process of being taken private this year are radio giant Clear Channel Communications, Spanish-language media firm Univision Communications and VNU Group, the corporate parent of The Hollywood Reporter and Nielsen.

Cable operator Cablevision Systems and music firm EMI Group are looking at possible transactions that would take them private, and though Emmis Communications chairman and CEO Jeff Smulyan failed in an attempt to take his broadcaster private, Street talk about another attempt continues.

Wall Street analysts and investors impatient with lagging stocks also have suggested that management teams at other sector biggies consider going-private transactions. For ex-ample, Pali Research analyst Richard Greenfield made headlines this year by suggesting that controlling shareholder Sumner Redstone take Viacom Inc. off the stock market after the company's stock was handily outperformed by shares of corporate sibling CBS Corp. for most of the first year after their split.

Suggestions of possible transactions like a potential going-private deal for EchoStar Communications have pretty much become Wall Street evergreens.

This year's spree in media- and entertainment-related takeovers is mirrored by what has become a banner year for U.S. buyouts.

As of Nov. 20, the value of announced acquisitions worldwide had reached $3.5 trillion for the year, exceeding the 2000 record of $3.3 trillion, according to Dealogic. U.S. deals accounted for 36%, or $1.2 trillion, the research firm said.

At about the same time, Bloomberg said its data showed that the value of takeovers announced in the U.S. this year has climbed to $1.4 trillion, the most since 2000.

Private-equity deals accounted for 30% of this, or $425 billion.

With many big targets already taken private, some are predicting smaller media and entertainment companies that don't benefit much from being publicly traded could be bought out by PE groups in the new year.

Susquehanna Financial Group in a recent report cited World Wrestling Entertainment as a perfect example. According to Susquehanna analyst Michael Kelman, WWE has "no real need to be a public company" as it has about $4 per share in cash and no debt. As a result, the McMahon family, which already owns about 70% of WWE, could simply take the company private again, he said.

As one of the few remaining independent film studios, Lionsgate has long been seen as a potential takeover candidate for larger entertainment industry players. Its disciplined approach to business is a quality that financial buyers like PE firms find appealing, Kelman said.

Since Clear Channel's agreement to be bought out, Wall Street has continued to debate whether more radio groups could end up going private, but most analysts have been mixed on that outlook.

Citigroup analyst Eileen Furukawa recently said that several radio stocks jumped in the late summer and fall because of buyout speculation. "But we don't expect a flood of (deals)," she said, citing that stock prices might have to come down for PE deals to create real returns. "Instead, we believe that most public broadcasters (will continue) to be focused on buying back stock (as a first step toward going private down the road), as well as selective transactions."
comments powered by Disqus