The Hollywood creative community is transfixed by the new wave of megamergers. At the typical social gathering, conversation may occasionally veer to O.J. Simpson, but then the Topic of the Day takes center stage once again. Why are these megamergers taking place? Why has the landscape of show biz been rearranged so abruptly?
One reason for the panic and confusion is that the megamergers have given birth to a new language — call it Megaspeak. New terms have suddenly been inserted into the business vocabulary, and old ones have taken on new meaning.
I ran into an example of this a couple of weeks ago when I asked Michael Eisner what he planned to pay his new “partner,” Michael Ovitz. Eisner didn’t pause for a beat. “I’m not going into the numbers with you,” he intoned, “but it’s a unique package built around the principle of incentivized compensation.”
I thanked Michael for this information, all the while thinking, “That’s a fascinating new euphemism: Incentivized compensation.”
In former years, of course, an incentive was something simple-minded like a performance bonus. The new era of Megaspeak, however, has morphed the bonus into something far more grandiose. We got a hint of this last week during the complex negotiations between Time Warner and Turner when some top Turner people got a glimpse of the multimillion-dollar “incentivized compensation” packages held by Time Warner executives. Fully 20% of TW’s outstanding stock had been set aside for executive option plans, they found, which is twice the national average. Even Disney had set aside only 10.6% for this purpose. All this, of course, greatly exacerbated concerns about dilution.
Since old terms are taking on fresh nuances, I decided it might be helpful to put together a sort of megamerger glossary to help readers understand the historic events sweeping the entertainment industry. To accomplish this, I enlisted the help of an investment banker friend — an old pro at mergers and acquisitions — who would provide a reality check on the new vocabulary of Megaspeak.
Herewith some examples:
Megaspeak definition: Companies can achieve new synergies by both producing and distributing “content” through all media.
Reality check: By achieving market oligopoly, you can deftly bury problems because you totally control the fate of your turkeys as well as your hits.
Megaspeak definition: To quote Federal Trade Commission chairman Robert Pitofsky, this refers to a condition whereby “mergers are not between competitors but represent a healthy restructuring of those industries with vast overcapacity.”
Reality check: The government plans to look the other way while competitors huddle together to rearrange the marketplace.
Megaspeak definition: The inhibition of aggressive expansion by a nasty minority on the board of directors.
Reality check: The reining in of an eccentric visionary like Ted Turner whose reach may exceed his cash.
Megaspeak definition: By issuing vast amounts of stock you can effect debt-free acquisitions to enhance the core business and drive up the price of shares.
Reality check: By flooding the market with shares, existing management can dilute holdings of big shareholders and thus stay in the driver’s seat.
ECONOMIES OF SCALE
Megaspeak definition: Through aggressive acquisition, a corporation can drastically reduce its costs and downsize its work force.
Reality check: By chomping up its competitors, a megacompany can stop fretting about its costs because no one’s left to compete with it.
MONETIZING AN INVESTMENT
Megaspeak definition: The art of transforming corporate assets into cash to reduce debt.
Reality check: The art of untangling nightmarishly complex deals like Time Warner’s Toshiba and Itochu partnership, which no one can understand anyway, and converting them into some tangible asset before institutional investors start asking too many questions.
Megaspeak definition: American-based entertainment companies can achieve their manifest destiny by teaming with overseas partners that offer the appropriate “fit.”
Reality check: By effectively choking foreign markets with U.S. product, American companies can render foreign-based entertainment rivals utterly irrelevant.
Megaspeak definition: Something a company should assume with prudence to fuel new synergies.
Reality check: A weapon to be wielded aggressively; by achieving a cosmic debt, a company effectively controls its lenders, rather than the other way around.
Megaspeak definition: A key device whereby financial institutions can achieve economies by establishing hegemony over record-keeping and processing operations worldwide.
Reality check: A new device whereby the number crunchers can wrest control from the operating heads.
Once you have mastered the new glossary of Megaspeak, the strategic objectives of the megamergers suddenly become crystal clear. At that point, you can gird yourself for the brave new world wherein society is dominated by what Steven Nagourney, chief investment strategist for Lehman Brothers, calls “Megacorporate States.”
You may not be comfortable living in a Megacorporate State, but at least you will sound better informed.