The novel coronavirus is not only expected to cause a recession and wreak havoc on entertainment industry earnings, the pandemic has also had an impact on mergers and acquisitions, with several planned asset sales in the sector delayed amid the crisis.
ViacomCBS, for one, has signaled that two planned divestitures, for which it is believed to be eyeing price tags of $2 billion to $2.5 billion on a combined basis, with the cash proceeds expected to go toward paying down debt, will be delayed by the virus crisis until later this year.
Since the pandemic’s impact on earnings is unclear, price tags are becoming tricky to weigh for potential buyers and sellers. Plus, many Hollywood sector companies’ debt ratings are already under review. And many entertainment firms are moving to shore up cash amid the crisis, instead of putting it into new buys.
“I would surmise that this unfolding public health crisis appears to have all the ingredients of a very inconducive environment for M&A transactions,” Tuna Amobi, analyst at CFRA Research, tells The Hollywood Reporter. Former industry analyst and Vogel Capital Management CEO Hal Vogel, adds, “No one is processing this until things stabilize a bit.”
No surprise then that ViacomCBS, led by CEO Bob Bakish, on March 18 postponed the sales process for CBS headquarters Black Rock in New York, citing the pandemic. “The company has received significant interest in the asset,” it said. “However, with the safety precautions related to COVID-19 announced by public officials now in place, the company has decided to postpone the sale process until interested parties can visit the property in person.”
ViacomCBS back then signaled that it still expects a sale to close this year, but with measures against the virus having been expanded and extended in many places, timing has been changing for many events and processes across Corporate America as of late. “Until we know more about when social distancing ends, we won’t know how far they are delayed,” Needham & Co. analyst Laura Martin tells THR about sales processes in the age of the pandemic.
ViacomCBS was understood to have been eyeing a price tag of more than $1 billion for Black Rock, and economists’ and Wall Street’s expectation of a recession in the wake of the pandemic may not hit the sale of an iconic midtown Manhattan building. Still, at least one observer has suggested the price expectation could prove to be optimistic.
“Investors had expected gross proceeds of about $1 billion” for Black Rock, Bernstein analyst Todd Juenger said in a March 26 report. “In our model, we assume the building gets sold for $800 million in the fourth quarter of 2020.”
One banker said though that ViacomCBS’ balance sheet was solid enough that it could hold on to Black Rock if it doesn’t get a sales price it is happy with and consider another auction of the iconic midtown Manhattan building down the line.
In early March, ViacomCBS also unveiled plans to sell book publisher Simon & Schuster, but CEO Bob Bakish signaled that the process would only kick into high gear after things settle down in terms of the pandemic. “So as this market stabilizes, we’ll engage in a process and look at strategic alternatives,” he said, adding he had already received “multiple” expressions of interest. Those are believed to have come from other book firms, such as News Corp’s HarperCollins, since major publishers only rarely hit the auction block, and investment firms.
Analysts at the time estimated the book unit could fetch $1.2 billion to $1.5 billion. Moody’s analyst Neil Begley said that buyers could after the virus crisis put some downward pressure on their bids, but highlighted that enough suitors, with more than 20 parties understood to have expressed interest, would keep that risk limited. “One may safely assume that there is the possibility that buyers may wish to sharpen their pencils on their bids,” he tells THR. “If the auction is competitive though, I doubt that the crisis will materially impact the sale.”
Again, one banker says the company could hold off on a sale of Simon & Schuster until later if it doesn’t get a price tag it is happy with. A Friday sale of $2.5 billion in new debt gave the company some additional liquidity.
Meanwhile, ViacomCBS has not provided any updates on when it will close its $375 million deal with Qatar’s BeIN Media Group that would give the former a 49 percent stake in studio Miramax, which has a library of 700-plus titles. But sources say the deal is expected to be closed within days, even though a general delay in final deal closure steps rather than the coronavirus pandemic are believed to be the driver behind that.
Under the terms of the transaction, unveiled in December, ViacomCBS is scheduled to make an upfront cash payment of approximately $150 million and has committed to investing $45 million annually over the next five years, for a total of $225 million, to provide funding for new film and television productions and working capital.
The company had planned to close the deal by the end of the first quarter, meaning Tuesday. One source familiar with the situation tells THR that the companies were on track to close the deal, but timing was slightly delayed, meaning a likely deal close within days. ViacomCBS didn’t comment.
“I am certain that there is a contract,” said Begley. “I expect that there is a greater likelihood that having an ownership stake in a valuable library like Miramax remains strategically important to ViacomCBS and therefore [the deal] will close.”
Meanwhile, in a March 27 report, MoffettNathanson analyst Michael Nathanson suggested that amid the coronavirus pandemic, ViacomCBS should reconsider its strategy and look at selling more assets. “Absent a major change in the direction of ViacomCBS, we do not think investors will embrace the company’s asset mix or business plan,” he wrote. “Maybe it is the time to consider selling some assets to companies with bigger balance sheets and interests in competing in the global SVOD business.”
Nathanson also detailed his suggestions. “The company should commit to selling Showtime, merging CBS All Access with another SVOD/AVOD player like Peacock or Hulu and perhaps selling Paramount to the highest bidder,” he wrote. “As Bradley Cooper sang, maybe it’s time to let the old ways die.”