Lack of good returns make investors wary of grandiose dealmaking
NEW YORK — Talk is cheap when it comes to media mergers, but deals are dear.
Just ask Comcast chief Brian Roberts, who pulled his bid for Disney last week, having failed to convince the Mouse board or even his own shareholders that a marriage was in their long-term interests.
Or Time Warner, which so soured its investors with its past transgressions that CEO Dick Parsons these days has to tippy-toe around talk of acquisitions, even no-brainers like bankrupt cabler Adelphia.
Then there’s Viacom prexy Mel Karmazin, who’s made himself a poster boy for “Just Say No” to deals, insisting at a recent conference that there’s very little out there worth paying for.
Clearly, CEOs can no longer afford to wear their ambitions on their sleeve. Caution is good; share buybacks are even better.
Why is it so tough to build a media love nest these days? Blame it on jittery stockholders, fractious boards and lousy track records.
The new CEO watchwords are “fiscal discipline” and “shareholder value.”
“Investors are far more wary than ever about deals because most in the past just didn’t work,” says Sanford Bernstein analyst Craig Moffett.
“The ethos several years ago was, ‘Any deal is a good deal.’ The mere mention of a merger could send both buyer and seller’s stock up,” Moffett recalls. “But those days are so long ago it’s hard to remember they ever existed.”
It’s tough to get good returns on big deals, and shareholders know it.
As a result, media companies with spare cash are more disposed to buying back their own stock or paying dividends to shareholders rather than risking big bucks on a transformational acquisition.
The daunting reality is that barely a third of all companies that undertook big acquisitions in recent years saw their shares outperform the market after three years. Nowadays, even the hint of grandiose dealmaking aspiration can sour a company’s share price, even if the deal makes sense.
Unlike the go-go 1990s, today’s more cautious mood makes even the most ambitious takeover tarts shy about spending shareholders’ dough. CEOs must walk a fine line between being shrewd and opportunistic and appearing egomaniacal and profligate. So execs have adopted a new kind of dealmaking doubletal: “We don’t need it, but we could buy it if we wanted to.”
That kind of language only confuses investors, and left Comcast’s Roberts in a classic quandary: Having tried to make a case for why the Philadelphia-based cabler was willing to put shareholders’ hard-earned stock into a multibillion-dollar bid for Disney, he also had to convince them that its interest in the Mouse House didn’t mean Comcast’s cable biz was low on fuel.
Shareholders weren’t buying the mixed message. Nor are they yet convinced that having been bit by the acquisition bug Comcast won’t be lured back.
Asked whether he would consider buying a content company such as MGM, Roberts last week said that while Comcast could add value by exploiting content over its large footprint, such deals are “not critical to growth.”
Similarly, Parsons’ guarded words last week spoke volumes. He assured shareholders that TW “likes the businesses we’re in” and even though he might like to grow its cable footprint the company was under no pressure to do a bad deal.
Viacom’s Karmazin is more consistent than most about acquisitions: He doesn’t like most of them.
Last week he rebuffed the notion that the company needed to buy distribution with the old analogy that nobody asks Procter & Gamble if it needs to buy Wal-Mart. Karmazin claimed to have no interest in adding the 4,000-title MGM/UA library to Paramount’s smallish film catalog and said the Internet was a good place to do small deals but nothing “transformational.”
Cox CEO Jim Robbins, reporting quarterly results last week, reminded investors that Cox was not interested in bidding for all of Adelphia simply to get bigger. Rather he’d take a look at a few choicemorsels, “at a price that would allow us to create shareholder value.”
To be sure, some deals do get done, but they haven’t come easily.
NBC chairman Bob Wright put forth a Herculean effort to convince his GE bosses that buying VUE was too good an opportunity to pass up. The trick was getting it cheap.
Kirk Kerkorian has been fishing for an MGM buyer for several years. He’s had plenty of nibbles but talks always collapsed over price and assurances that MGM managers would have prominent roles in any combined company.
Now Sony has re-entered the Lion’s lair, and the deal only makes sense financially because it would be financed largely by leveraged buyout firms.
(NBC may also be running the numbers on an MGM deal, but it might have trouble convincing GE shareholders that the Lion — at an asking price of $5 billion — is worth more than Universal.)
Today’s anti-wheeler dealer mood is particularly tough for companies that have to do deals, like John Malone’s Liberty Media.
Liberty is trying on a new mantra as an operating company, but most investors aren’t buying it. Malone may be all about buying and selling, but he’s got a lot less leverage than in the good old days.
Lately, he’s been banging on Rupert Murdoch’s door trying to engineer a complicated asset swap with News Corp. while lobbying investors that a newfangled international spinoff is a great new platform for foreign cable acquisitions.
For Malone, it’s still another day, another deal.