A day after gloom descended on Wall Street, the Dow rebounded, bringing more than a few media stocks up with it.
The Dow, which plummeted 504 points Monday in the worst drop since the Sept. 11 terrorist attacks, rose 141 Tuesday. Traders are still sifting through the weekend’s storm of news involving the sale of Merrill Lynch and the bankruptcy of Lehman Bros. as well as the wobbly state of another major firm, insurance giant AIG.
For the media biz, Wall Streeters said the repercussions from Monday’s meltdown will be significant:
- Private equity coin for deals and pic financing is likely to disappear.
- Mergers and acquisitions in the media sector will be few and far between in the near term.
- Caution will be the watchword in biz planning as the financing markets tighten up even more.
“It’s been an incredibly slow year for the media M&A landscape,” said Quadrangle chief Steven Rattner Tuesday ayem during a panel discussion at the Four Seasons sponsored by Portfolio magazine. “I think what’s happened in the last few days is simply going to exacerbate that and you are gong to have less availability of credit.”
The enfeebling of major banks has meant that no private equity deal of note has closed since summer 2007, Rattner noted. The ratio of debt to equity has fallen accordingly, and the number of front-rank banks willing and able to lend money for media deals has dwindled to zero.
NBC Universal topper Jeff Zucker, who was also on the panel, noted the conglom’s recent $3 billion purchase, via a private equity consortium, of the Weather Channel, but he still agreed with Rattner’s general take.
While underscoring how reluctant dealmakers will be in the near term, he took care to bat away three persistent rumors: that NBC U would be sold by GE, that DreamWorks would be brought into the NBC U orbit (though “we’ve talked”) and that NBC Entertainment chief Ben Silverman would be out of a job.
As the world cools down in the next couple of months, Zucker said, “We need to make sure our things are in order.”
“We are going to have to continue to transform our portfolio, because we can’t be defined by our broadcast, so I think we take the next couple months to figure out where we want to go. International is a place where we have been active and where we are going to continue to look. I think the digital landscape on the M&A (front) has just been too expensive. I think the prices have been way out of whack.”
On the front lines of the market Tuesday, shares in Cablevision, Disney, Regal Entertainment and DreamWorks Animation posted slight gains, while slippage by other conglom stocks was generally modest and not directly linked to the banking chaos. Viacom was one of the hardest hit, shedding 3.2% to close at $25.70, down from its previous 52-week low of $26.05 and a hefty drop from its 52-week high of $45.40.
News Corp. fell a quarter to $13.56. Sony lost a nickel to $33.67. Liberty Entertainment fell 36¢ to $25.48.
Execs at the major media congloms will be on the front lines this week in Gotham for the fortuitously timed Goldman Sachs media conference. Time Warner’s Jeffrey Bewkes, CBS’ Leslie Moonves and DreamWorks’ Jeffrey Katzenberg are among the heavy hitters on the docket.
In recent weeks, as the economy struggled, execs have staunchly insisted that given entrenched consumer habits, the media biz is buffered from the worst of the downturn to some extent. Stellar TV ratings records for the Olympics, the political conventions and college football, plus a better-than-expected showing at the summer B.O., lent some support to their stance.
Mel Karmazin, chief exec of Sirius XM, had a different view of the short-term marketplace than his fellow panelists at the Portfolio-sponsored gabfest.
“What’s going to happen is that sellers’ expectations are going to have to come down; banks will be willing to lend, but lend very conservatively. There’ll be people out there with equity who are interested in buying, but not buying at the kind of multiples that the sellers are currently expecting.”
Karmazin recalled launching Infinity Radio, which vaulted him into the media spotlight when it became part of CBS and then Viacom, at a rough time in 1981 when interest rates topped 20% and the economy was ailing.
Karmazin repeatedly said that the new president will be able to lift the economy. A few eyebrows were raised by his reply to one audience member’s question about which candidate would be better for the economy.
He recalled the struggle to win a vote in favor of the Sirius-XM merger. “The two Democrats weren’t even close” to approving it, he said. “McCain is better than the alternative.”