Wall St. Does The Showbiz Shuffle

Just as the media and entertainment landscape has changed dramatically in the last two years, so has the lineup of Wall Street firms doing media and entertainment deals.

While some veteran heavy-weights are backing away from the ring, other firms are moving aggressively forward.

The changes affecting media and entertainment groups are the same as those facing their clients: fewer deals, the lingering effects of bad deals, tighter budgets and lower availability of financing for transactions.

“Quite simply, there are more investment bankers scrambling for increasingly fewer deals,” says Alan Hirschfield, managing director of Wertheim, Schroder & Co. “You can no longer just go out and sell $100 million of stock or bonds and call it a day. Investment bankers have to take a more creative approach and make their own opportunities.”

Five years ago, M& A and corporate finance work in the media and entertainment sectors was dominated by Wall Street giants Drexel Burnham Lambert; First Boston; Goldman, Sachs & Co.; Morgan Stanley; and Shearson (now Lehman Bros).

Today, smaller firms with specialized areas of expertise are staking their claim. Many larger firms, laboring under tighter budget constraints, are curtailing their activities in the area – at least until business improves. And a dramatic slowdown in the number of deals has increased competition between investment bankers when deals do pop up.

What follows is a qualitative analysis of the Wall Street firms that operators say they perceive as the most and least active in the media and entertainment areas today.


* Lazard Freres & Co.: Lazard is riding high after representing MCA in its recent $6.59 billion sale to Matsushita. The firm has completed about $40 billion worth of media and entertainment deals in the last two years, and its growth prospects are among the best in the business.

General partner Felix Rohatyn is well respected in Hollywood circles and the firm’s strong European presence should allow it to capitalize on the exploding media and entertainment marketplace there. General partner Steven Rattner (former head of Morgan Stanley’s media group) helped orchestrate McCaw Cellular’s $7 billion acquisition of LIN Broadcasting and should continue to expand Lazard’s presence in cable tv and cellular communications.

* Allen & Co.: Because of its work on Columbia Pictures’ sale to Sony Corp. and its representation of Matsushita on the MCA buy, Herb Allen’s firm wields tremendous clout in Hollywood. But the firm’s strength always has been servicing a small circle of powerful clients; now that Columbia and MCA are done deals, it is not clear cut what transactions Allen may be involved with. Rupert Murdoch’s News Corp. may be a good bet because of exec. v.p. Stan Shuman’s longtime relationship there.

* Goldman, Sachs: The No. 1 company on Wall Street in terms of all M& A deals completed ($50.8 billion) in 1990, the firm continues as a strong presence in media and entertainment M& A and corporate finance. Within the last year, Goldman represented News Corp. on its $400 million sale of The Star newspaper to Boston Ventures, advised Multimedia on its $1.1 billion refinancing and was co-manager on Polygram’s $512 million intitial public offering.

Goldman also advised the National Football League on the sale of its broadcast rights to the networks, was lead manager of Reader’s Digest’s $500 million initial public offering, handled the Providence (R.I.) Journal’s $700 million sale of its cellular communications systems to GTE, and represented Contel on its merger with GTE.

Partners Rich Friedman and Gary Gensler spearhead the efforts of 12 merger and corporate finance professionals who form a core group working on media and entertainment deals. Despite reports last week that Goldman plans to layoff 6% of its investment banking staff, sources say Goldman’s work across industry sectors should serve its media and entertainment effort well going forward.

* Salomon Bros.: The No. 7 firm in terms of overall M& A activity, with $32.2 billion worth of deals completed in 1990, Salomon has come on especially strong in recent months in media and entertainment M& A and corporate finance. Salomon helped advise General Cinema in its merger last week with Harcourt Brace Jovanovich and is representing Orion Pictures in its search for a buyer.

The firm also advised Jacor Communications on its restructuring, represented CBS on its share repurchase and raised $250 million of longterm debt for Capital Cities/ABC. Former Shearson media and entertainment topper Fred Seegal has joined co-managing directors Nancy Peretsman and Rick Grand-Jean, who focuses full-time on entertainment, to form one of the Street’s strongest and most experienced media and entertainment groups.


* Wertheim Schroder & Co.: Smaller than most of its Wall Street competitors, the company has been building a bigger name for itself in media and entertainment circles. It recently completed an evaluation of News Corp.’s U.S.-based Fox assets and is auctioning off Financial News Network. Its media group, headed former Ernst & Young senior partner Errol Cook, includes former 20th Century Fox chairman and Columbia Pictures president Alan Hirschfield (interim co-chief executive at FNN), former NBC prez Herb Schlosser and respected entertainment analyst David Londoner.

* Furman Selz: A smaller player that has carved a niche among its larger competitors by offering its clients in-depth knowledge of the industry, the company recently completed a $75 million financing for Carmike Cinemas, advised New Line Cinema on its investment in RHI Entertainment and is exploring financing alternatives for Fries Entertainment. Its media and entertainment group boasts a solid lineup, including prez Roy Furman, former member of the office of the president of Lorimar-Telepictures Michael Garin, and former NBC exec v.p. Raymond Timothy.


* Donaldson, Lufkin & Jenrette: Perhaps the firm’s strongest asset in the media and entertainment area is analyst Dennis Leibowitz, who, almost singlehandedly, led Wall Street into cable tv and cellular communications stocks in the 1980s. The firm’s research efforts continue to channel M& A work to its media and entertainment group. Headed by Bob Johnson, the group recently completed the $300 million refinancing of the Palmer cable systems, represented Qintex in the sale of its assets and is currently working on Saatchi & Saatchi’s restructuring.

* Bear, Stearns & Co.: The firm’s media and entertainment conference, held each fall, has become the industry’s equivalent to Drexel’s famed “Predators Ball.” The firm’s media and entertainment group, headed by managing director Michael Garstin, continues to be committed to the sectors despite the current downturn. It maintains strong relationships with Viacom, Cablevision, Carolco Pictures and Spelling Entertainment, among others, and is positioning itself for growth when the business returns.

* Merrill Lynch & Co.: Merrill’s media and entertainment M& A group, headed by James Mason, pulled off the impossible, selling MGM/UA to Giancarlo Parretti’s Pathe for $1.3 billion (the fact that MGM/UA president Jeffrey Barbakow was once a Merrill investment banker probably helped seal the deal). On the corporate finance side, the company’s $1 billion bridge loan to Time Inc., which allowed it to complete its $14.1 billion acquisition of Warner Communications in 1989, emphasized the company’s commitment to the sector.

Aggressive marketing of its Liquid Yield Option Notes (LYONs), which have been used by both Walt Disney Co. and Turner Broadcasting System, has reaffirmed that commitment and helped keep the company in the media and entertainment forefront. Another asset is Harold Vogel, among the best known of a shrinking pool of media and entertainment securities analysts. Merrill is advising Tele-Communications Inc. on its Liberty Media spinoff.

But companywide cutbacks (the firm announced another round of layoffs just last week) are expected to keep the groups from moving as aggressively in the media and entertainment areas as they may wish.

* Lehman Bros.: The firm (formerly Shearson Lehman Hutton), which helped design Warner Communication’s sale to Time Inc., remains active in media and entertainment M& A and finance. Effort is headed by Jill Greenthal, who took the reins after Fred Seegal jumped to Salomon Bros. last year. Lehman recently closed the sale of Group W Cable, completed the financing of the Chicago Sun-Times and is doing the workout of Noble Broadcasting. It’s is one of many Wall Street firms helping Matsushita finance its purchase of MCA.

Like Merrill, however, Lehman has been squeezed in the current downturn; it no longer can make bridge loans to its customers since the collapse of the junk bond market and will be measuring its moves more carefully in all areas, including media and entertainment.

* Smith Barney: The firm, which long has been active in the telecommunications arena, looks to keep its media and entertainment involvement going forward. Most recently, it advised Harcourt Brace Jovanovich in its merger with General Cinema. Former Drexel analysts John Reidy and Jeff Russell this month transplanted the media and entertainment conference they ran at Drexel for the past three years at their new home Smith Barney. While the effort is there, the payback for the firm will take longer to materialize. Smith Barney lost a star in analyst Mara Balsbaugh, who announced her retirement earlier this month.


* Morgan Stanley & Co.: The Wall Street Goliath established itself as one of the true media and entertainment powerhouses of the 1980s. Its media and entertainment group was involved in 46 mergers and acquisitions, with a value of over $24 billion, between 1988 and 1990 alone. But industry sources say that within the last year, the group headed by Chuck Cory (who took over after Rattner headed to Lazard in 1989) has been effectively dismantled; they describe Morgan’s current media presence as “almost nonexistent.”

Cory refutes such assertions; while the group has been reorganized, it did complete $7.5 billion worth of media M& A in 1990, including MCA’s purchase of Geffen Records. He notes that the firm recently hired former Lehman Bros. analyst Alan Kassan to bolster its research effort going forward. Insiders contend, however, that Morgan, which last year placed second on Wall Street in overall M& A with $46.8 billion worth of transactions, has been hurt by a slowdown in deals in the broadcast and cable tv arenas and bad deals with Metropolitan Broadcasting and Price Communications, on which its investors lost money.

* First Boston: Another lion of the 1980s, First Boston’s media and entertainment group, has felt the impact of companywide cutbacks and sources say it appears in the midst of reorganization. Media and entertainment analyst Jessica Reif recently was let go; investment banker Stewart Halpern, who was active in the international media markets, was cut last year.

Despite the turnover, media and entertainment head Fred Smith contends that his 17-person group remains committed to the media and entertainment sectors and says Reif will be replaced. The firm, with Salomon Bros., co-managed General Cinema’s merger with Harcourt Brace Jovanovich. But, while the firm ranked fifth in overall M& A with $40.4 billion worth of transactions completed in 1990 – and still maintains a focus on the cable tv sector – insiders say a broad-based media and entertainment M& A effort is not evident at First Boston.

* Kidder, Peabody & Co.: Like Morgan, Kidder was one of the most aggressive media and entertainment deal-doers of the late 1980s. And group head Richard Intrator says the firm continues to actively pursue new business. But some of the firm’s deals, like bankrupt Management Co. Entertainment Group, which defaulted on a $72.5 million bridge loan, have come back to haunt the company and diminish its reputation on Wall Street. Sources say sister company GE Capital, which last spring absorbed many of Kidder’s outstanding loans, also is hurting from bad loans and has become less aggressive in the media and entertainment arena.

* Paine Webber: Despite its highly popular media conference each December, sources say the firm has been much less active in its media and entertainment M& A efforts. Ed Dugan, the longtime head of the media and entertainment group, no longer is with the firm. On the research side, Paine Webber recently jettisoned analyst Lee Isgur, who followed the syndication business. Analyst Ken Noble has retired, though he will continue to work for the company in a consulting capacity. But former Drexel banker Julian Markby, who took over the media and entertainment M& A effort last year, says that while the firm has downsized, it plans to be active in the media business going forward. Analyst Alan Gottesman continues to cover the broadcasting and advertising industries, and analyst Craig Bibb was recently hired to cover cable tv stocks. The firm is interviewing for a replacement for Isgur.


* Drexel Burnham Lambert: The firm, which did as much as any company on Wall Street to foster the growth of media and entertainment companies in the 1980s via the aggressive use of junk bond financing, was the biggest and most widely felt of what may prove to be a growing list of major Wall Street brokerage failures.

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