December 22, 2009

Top 10 Misbegotten Media Mergers of the Decade

Mgm 5. Consortium buys MGM
Announced: September 2004
Closed: April 2005
Private equity's power was reaching new heights, so it seemed only logical that PE firms would play a key role in buying the legendary Hollywood studio from Kirk Kerkorian (pictured) for $4.8 billion. Sony Corp. led a consortium that included Providence Equity Partners, Texas Pacific Group, DLJ Merchant Banking Partners and Comcast Corp. Nevertheless, MGM has been undermanaged and underperforming since the deal. Some have questioned whether the owners really cared, with a lack of creative successes likely to have soured their mood. However, they can't be happy that the firm's financial weakness and debt issues have put it back into possible sale mode, with the equity owners overpowered by creditors. But there might be beneficiaries after all. Cable giant Comcast got a key deal for rights to use MGM and Sony movies on-demand out of its participation. And Time Warner, which was beaten out in the previous auction, may get the company on the cheap. Possible bidders have hinted interest at $2 billion or less. While that's early posturing for a sale, it's also proof for the declining value of MGM. 

Sony_bmg 4. Sony BMG
Announced: November 2003
Closed: March 2004
The past decade not only beat up the music industry in a way that has made its early reaction to Napster the anti-role model for entertainment companies in the digital age. The sector panic also led to two big, bad deals. The combination of Sony Corp. and Bertelsmann's BMG to recorded music firm Sony BMG Music Entertainment taught everyone an obvious lesson: 50-50 joint leadership creates problems when the two partners can't agree on strategy. The result: time-consuming arguments and corporate infighting. Former NBC News and current Bloomberg executive Andrew Lack ran the joint venture's day-to-day operations for Sony as CEO, but he was ousted after two years as the firm's share of new U.S. releases slid, people questioned his music business insight, European regulators kept questioning the deal, and BMG balked at the terms of a deal the firm struck with Bruce Springsteen. Another early misstep in the marriage included digital rights management software that automatically installed itself on people's computers and made them vulnerable to viruses, leading to a consumer outcry. In fall 2008, Sony bought out Bertelsmann's 50% stake for $1.2 billion to take full control of what is now known as Sony Music Entertainment -- and end the nightmare. The lesson: rock 'n' roll is fun, but harder than you think!

Zell_times 3. Sam Zell buys Tribune

Announced: April 2007
Closed: December 2007
Timing is everything. The billionaire investor bought the troubled media assets in an $8.7 billion leveraged buyout just as the recession added to the challenges Tribune's newspapers and TV stations already faced because of digital competition. And he took on loads of debt just before the credit market went south. The company quickly ended up in Chapter 11 bankruptcy. And Zell, who personally put $250 million into the company, recently admitted that his Tribune play was "certainly the most amount of money I've ever lost in a deal." Tribune is expected to emerge from Chapter 11 early in 2010, but how long will Zell hang on?

6a00d83451d69069e20128765cfefa970c-800wi 2. Vivendi Universal
Created: December 2000
Why wouldn't a water conglomerate buy an entertainment company, right?! Exactly! Ex-Vivendi CEO Jean-Marie Messier thought that going into Hollywood would make the water conglomerate sexier. An agreement between Vivendi, the Seagram Company Ltd. and Canal+ combined water and telecommunications assets with a French pay TV outfit and Seagram's film, TV and music holdings (including Universal Studios). But he didn't manage to establish much trust with Seagram boss Edgar Bronfman Jr. (pictured, taking a swig during a news conference with Seagrams shareholders on Dec. 5, 2000), a doubtful press and investors. And amid increasing evidence that Vivendi's financials were much weaker than publicly stated -- something that haunted Messier in court proceedings instigated by shareholders accusing him of fraud -- he had to ride into the sunset. Vivendi then restructured its entertainment holdings to a 20% stake in NBC Universal and recently agreed to sell the rest. It's now water under the bridge ... a pun that can't be worse than the deal.

Aol_time_warner 1. AOL-Time Warner

Announced: Early 2000
Closed: Early 2001
As if there were any doubt what No. 1 would be. It was at the dawn of a new century and late in the dot-com boom when Steve Case and Jerry Levin unveiled a deal that they promised would bring convergence, synergy and industry-leading financial growth. But it didn't take long to become the most maligned merger in media; hell, even one of the most hated deals in any industry. In history. Cultural clashes, overblown financial expectations, conflicting business interests of executives and divisions and just plain bad execution were just some of the ingredients of failure, which textbooks for future media leaders will forever list as mega-don'ts for mega-mergers. No wonder that TW chairman and CEO Jeffrey Bewkes, who was at HBO when the merger was conceived and opposed it, has consistently distanced himself from any suggestion of interest in BIG deals that make little sense. The AOL chapter in TW's history came to a formal close in early December with the spinoff of the online firm.

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