Words on Street: media mergers

Rumors about Microsoft-Yahoo! link, Reuters, EMI

Wall Street suffered a severe bout of media merger mania last week, with the latest buzz including a possible acquisition of Yahoo! Inc. by Microsoft Corp., a potential sale of radio network firm Westwood One as well as bids for music major EMI Group and information powerhouse Reuters Group, among others.

Friday's acquisition chatter topped off a week that started with the surprise news of an unsolicited offer by Rupert Murdoch's News Corp. for Dow Jones Co., and that seemed to be one key reason for the jump in numerous sector stocks.

American depository shares of Reuters closed up 26.9% at $74.76 after hitting a 52-week high of $81.03 on Friday. Yahoo! shares jumped 9.9% to $30.98 after going as high as $33.61, close to the stock's year-high of $34. Yahoo! led Friday's gainers on The Hollywood Reporter's Showbiz 50 stock index. Westwood One's stock rose 5.2% to $7.24, and London-based shares of EMI rose 8.2%.

Interestingly, after private-equity firms have dominated the media and entertainment deal scene for a while, some on the Street pointed out that some traditional media firms seem to have opened to transaction mode again.

Observers believe that suitors are in copycat mode, especially in the cases of online giants looking at buying Internet advertising firms and media companies looking to acquire financial news providers.

Some of the rumored acquisitions would be "me-too deals since the order of things is being shaken," Miller Tabak + Co. analyst David Joyce said. "While in certain circumstances such combinations would result in a degree of job losses, no firm wants to be left behind or not have appropriate scale."

Exactly such scale, especially in terms of Internet advertising, is what could drive Microsoft to push for a Yahoo! takeover, Street observers said. At a reported $50 billion offer price, that would, of course, be one of the biggest acquisitions of the year and follow repeated calls from industry watchers that two tech biggies join forces to take it to Google Inc.The Wall Street Journal reported Friday that there had been talks between the two firms but that they ended without an agreement.

Neither firm commented on the situation Friday, and observers also pointed to cultural differences and other hurdles that would surround a deal.

Meanwhile, Reuters, which has a news distribution agreement with The Hollywood Reporter and its parent firm, the Nielsen Co., said Friday that it has been approached about a sale in an announcement required by U.K. disclosure rules.

"The board of Reuters confirms it has received a preliminary approach from a third party which may or may not lead to an offer being made for Reuters," it said. There is no certainty an offer will be made or necessary approvals … will be received."

Reuters did not specify the name of its suitor, but market observers immediately suggested it must have been Thomson Corp., which has been expanding its financial news service. Company officials declined comment on whether Thomson had approached Reuters.

Thomson is in the process of selling its education unit, which observers have said could go for an estimated $5 billion and would therefore boost its cash war chest.

Some observers Friday pointed out that, similar to the News Corp. bid for Dow Jones, the Reuters talks highlight the value that some media firms see in financial news and data.

EMI also issued a statement Friday after U.K. media reports that private-equity firm One Equity Partners has joined the fray of potential acquirers.

While EMI also did not mention names, it did confirm that it has "received a number of preliminary indications of interest to acquire the company."

Finally, the New York Post reported Friday, citing unnamed sources, that Westwood One has hired UBS to prepare a possible sale. Westwood officials couldn't be reached for comment.

The Post said radio firms — especially Citadel Broadcasting — former Westwood CEO Shane Coppola and real estate mogul Sam Zell, who recently agreed to acquire Tribune Co., all seem interested in at least taking a look. Street observers also suggested private-equity groups and CBS Corp., which owns a stake of about 20% in Westwood via its CBS Radio unit, as potential buyers. A CBS spokesman declined comment.
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