Takeovers and mergers: Wishful thinking or logical consequence

In the run-up to 2024, a popular and exciting game is being played from Wall Street to Hollywood: merging media companies, or pieces of them, to see which elements will fit together in a high-risk puzzle and shape the future of the industry.

Continued losses in streaming, expected interest rate cuts (which could lower financing costs), more robust stock prices and the end of the WGA and SAG-AFTRA strikes - as well as actual high-level talks - lead many to believe that mergers and acquisitions in the media industry of all sizes could increase dramatically in the new year. In this final week of 2023 alone, Warner Bros. Discovery acquired Turkish streaming service BlueTV, Altice USA sold financial news streamer Cheddar and Lionsgate completed its acquisition of eOne.

There is also a logic to bigger deals. With Disney as "the only incumbent media company on a large scale," according to Vijay Jayant of Evercore ISI, a merger of NBCUniversal, Paramount and Warner Bros. Discovery has a strong economic rationale. For example, he sees savings of up to USD 5.5 billion from a merger of Paramount and WBD.

Double strikes in Hollywood have taken their toll on the industry, but with actors and writers signing contracts, observers expect to see positive momentum in the sector and an increase in transformational deals and creative deal structures.

Some on Wall Street are sighing at the thought of indebted companies piling up more traditional assets in deals that will have a hard time getting regulatory approval. But Robert Fishman of MoffettNathanson writes: "The more desperate these media companies and executives become in the coming weeks and months, the more likely it is that a deal will be struck in 2024, even without a fundamental rationale for doing so."

Key transactions in 2023 include Endeavor's purchase of WWE; French billionaire François-Henri Pinault acquiring a majority stake in CAA; Saudi Arabia increasing its involvement in golf (LIV Golf+PGA) and mixed martial arts (PFL+Bellator); and Disney investing in the third part of Hulu, which it did not already own. Paramount Global has parted company with Simon & Schuster for the second time, this time to KKR for USD 1.6 billion. Peter Chernin's The North Road Company has acquired a large stake in Two One Five, which was founded by Ahmir "Questlove" Thompson and Tarik "Black Thought" Trotter, and has taken over the Turkish production company Karga.

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