Rumors and Other Tales
The business is once again awash in talk of multibillion-dollar deals
By John M. Higgins -- Broadcasting & Cable, 2/27/2005 7:00:00 PM
I think Time Warner is going to buy Tribune,” a top media lawyer said to me. We were in a bad hotel bar over a round of drinks with the CEO of a TV-station group.
The idea had never occurred to me.
Time Warner—a massive cable-system, network, movie and online company—would want to take over Tribune Co., an old-line owner of newspapers and TV stations—two slow-growth businesses Time Warner has avoided for years. Why would CEO Richard Parsons do it? The WB, the lawyer replied. Time Warner controls the networks but doesn’t own any stations. Tribune—part owner of The WB—owns 19 of them, including big-market outlets in New York, Los Angeles, Boston and Chicago.
Stop. I’m not going into the many reasons Time Warner is very unlikely to drop $18 billion or so on Tribune to support its $600 million-revenue broadcast network (even if it could flip Tribune’s newspapers to, say, Gannett).
The point is, after a fairly quiet couple of years for media dealmakers, the business is awash in rumors about multibillion-dollar deals. Some are clearly well-grounded; some are far more speculative. But the end of the stock slump means that some media companies are getting past memories of the days their stocks were 50%-100% higher and may be willing to use shares as currency again for big takeovers.
I’m not just talking about the deals that people have been buzzing about for months—like whether a telco will buy EchoStar to control a play in the video market. Or whether News Corp.’s Rupert Murdoch will buy Liberty Media. After all, John Malone seems more of a seller these days, not a buyer.)
Perhaps the most speculation swirls around the Cablevision, run by the Dolan family. You heard it here first: Time Warner is buying Cablevision. I just don’t know what year. I chased this story for the first time back in 1989. Given Time Warner’s huge cable presence in New York City, various company executives have lusted after Chuck Dolan’s metropolitan-New York systems for years. It will come to pass some day, I know.
My favorite rumor of the month came out of the blue. A Wall Street analyst asks about something he keeps hearing from his clients at big institutional investors: “Comcast and Viacom.” Think about it, a $140 billion combination of the No. 1 cable operator, the No. 1 broadcast network, a lucrative pile of cable networks and a middling movie studio. Comcast CEO Brian Roberts would have control of all kinds of content to stuff into his video-on-demand systems, which is why he chased Disney.
It wouldn’t have been possible two years ago, but a federal court struck down restrictions on ownership of TV stations and cable systems in the same market. Not that Roberts wants to be in the broadcast business. He would regard CBS’ TV and radio stations as he did Disney’s theme parks: waste.
Nonetheless, would Roberts want to do a Viacom deal? Absolutely. “There’s only two problems,” says an adviser to Comcast during the Disney fight. “Sumner and Redstone.” Both the Viacom CEO and Roberts like control, and Comcast would never do a deal without a clear path to getting it. That path could be rocky, as ex-Viacom President Mel Karmazin found out the hard way.
At 80 years old, Redstone wants to leave a legacy. What kind is a big question. Would he want to cap off his life with a media megadeal? Or would he rather be remembered as captain of his ship until the end?
Redstone might also buy Univision, some people whisper. Redstone and new Viacom Co-President Les Moonves crave the potential of the growing Spanish market, and Co-President Tom Freston has made his career building niche audiences.
Univision doesn’t seem quite as far-fetched as a deal as Comcast, because Redstone actually made a $6.5 billion offer for the Spanish-language broadcaster two years ago. Univision CEO Jerry Perenchio rejected the approach, which has proved to be a good decision given that the two companies’ stock prices are moving in opposite directions. (Univision’s now worth at least $2 billion more.)
The major snag is in Washington. Univision and Viacom own too many broadcast stations in the same markets. “There would be triopolies and even quadropolies,” says one analyst who dismisses the idea.
Longtime cable partnerships are also provoking buzz now. Lifetime Television CEO Carole Black is leaving, and partners Hearst and Disney have spent a long time choosing her replacement. Hearst is a 50-50 partner with Disney in the network. With such key changes being made, are the two sides discussing bigger issues? Morgan Stanley analyst Richard Bilotti estimates it would cost Disney around $2.2 billion to buy out Hearst.
ON SECOND THOUGHT...
Some gossips think this is red hot. But industry executives close to the two companies are cold. “This is coming up because Bob Iger keeps telling people he wants to buy,” says a senior industry executive. “But Hearst doesn’t particularly want to sell, especially since Lifetime is getting back on its feet.” Ratings are perking up after dropping substantially since 2002.
Also, a Lifetime buyout would raise even more thorny issues in other partnerships, such as buying Hearst’s 20% share in Disney’s ESPN (worth around $7 billion) and its 33% stake in A&E (worth $2 billion).
Another partnership conundrum: When will one of the three partners in Discovery Communications decide to sell? Cox—a 25% owner—is a likely candidate given its debt from the Cox Communications buyout.
Finally, here’s a tip that’s real: Media titans are deal junkies. Wall Street would prefer to see media giants spend extra cash on dividends or stock buybacks, not more takeovers.
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