M&A Could Pick Up in Second Half of 2009

Potential buyers like Time Warner, Discovery biding their time for now

The mergers and acquisitions market may have ground almost to a halt due to the economy, but there are indicators that activity could pick up in the next few quarters. Even with valuations down, media conglomerates are out combing the jungle for weakened prey. No one's rushing into anything, but there's plenty of window shopping going on.

A report from PriceWaterhouseCoopers on the M&A marketplace said: “We wouldn't be surprised to find the E&M [entertainment and media] sector more active than many expect in 2009.” Of course, deal value isn't expected to be anywhere near the high of the 2008 figure—$150 billion—when even Weather Channel Interactive fetched $3.5 billion (see chart at left).

Time Warner, Discovery Communications and Google are potential buyers. Time Warner's stock has dropped much less than competitors, and the company will soon receive a $9 billion payout related to the separation with Time Warner Cable.

“We have room for acquisitions if there are real opportunities out there that don't represent stupid prices or acquisition risks,” said Time Warner chief executive Jeff Bewkes at an analyst conference last week.

When asked about whether there'd be consolidation in the broadcast market, he answered, “If something was selling at a really low price and where you could see a clear return on profit…Maybe some of them are getting really distressed. Seems like they are.” He quickly added, though, “I'm not stalking them for sure.”

Discovery's stock has risen against a falling market, and CEO David Zaslav recently told B&C that he isn't ruling out an acquisition play.

“We're always looking for additional assets that would help us grow faster in a difficult market; that sometimes presents opportunities,” he said.

And Google chief executive Eric Schmidt said last week that the company was sitting on $8.9 billion in cash. Among the companies Google has been linked to are micro-blog Twitter, increasingly being used as a newsgathering tool.

But Schmidt issued a word of caution, saying he wasn't sure whether prices had dropped as low as they might and that the market hadn't bottomed out yet.

That view seemed to be reflected by News Corp.'s CEO Rupert Murdoch, who said he was open to acquisitions but had seen little of value. “If they come to us and they are screaming bargains and they would fit us very well, we may well do that,” he said. “But we haven't seen any sign of that yet. I have looked around, and I really haven't seen any businesses that I really want to buy.”

Acquisition rumors tend to circle around the same names, which often include General Electric's NBC Universal, AOL, Yahoo, Cablevision's Rainbow and Scripps Networks Interactive. But with the exception of AOL, none of those companies are publicly soliciting deals. No one likes to sell in a bad market, though some, like Mel Karmazin's SiriusXM, have been forced to make deals to ensure debts can be repaid.

One board member of a major media concern suggested that companies with large debt loads or big print operations might be tempted to sell assets. Scripps Networks Interactive said it is talking to bankrupt Tribune Co. about buying its 31% stake in Scripps' Food Network. Brian Weiser, senior VP of industry analysis at Magna, part of Interpublic Group, observed: “Cash is king, not content, right now.”

He added that investors' appetite for transformative acquisitions has been tempered: “The markets are depressed because of the need for liquidity; if you're illiquid, now is a good time to sell; if you're liquid, now is a good time to buy.”

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