The media industry was swept by a wave of takeovers last year, with 363 transactions valued at far more than $26 billion, making it one of the nation's most active business sectors for mergers and acquisitions.
According to a study of the media industry conducted by Mergers & Acquisitions, a Philadelphia-based bimonthly journal, the media industry accounted for about one of every 11 mergers and acquisitions in 1986 and about one of every $7 of the deals where the dollar value is known.
"The facts affirm that the industry is one of the most active business segments for mergers, acquisitions and divestitures, that large deals are common and that many of the most famous media groups are frequent buyers and sellers," said Martin Sikora, editor of Mergers and Acquisitions.
Some forces behind this frenzy of activity included unique characteristics of the media industry, the state of the economy, technological changes and government policies, according to a section of the report written by J. Kendrick Noble Jr., first vice president of PaineWebber Inc.
The study includes print media, broadcasting, advertising, news syndicates, public relations and motion picture production and distribution. To qualify for the report, a transaction must be valued at $1 million or more.
The dollar value was known for 165 of the 363 media deals, and that dollar value totaled $26.4 billion. The values for the other 198 transactions were not disclosed but were assumed to add at least several billion dollars.
Fifty-five media deals were worth $100 million or more, which is 15 percent of all media deals and one-third of the media deals where the price was revealed. In contrast, deals of $100 million or more for all industries represented about 9 percent of all deals and 20 percent of the deals with known prices.
"What these data add up to is that the large deal tends to be more common in the media area than in other industries," said Sikora.
According to the report, mergers and acquisitions in the media industry have been frequent throughout the takeover wave of the mid-1980s, although the number of deals and the prices they commanded surged last year. There were 233 deals in 1985 with a known dollar value of $9.4 billion, and 217 deals in 1984 with a known value of $9 billion.
Noble of PaineWebber Inc. said, "The last four years through 1986 have been marked by the greatest wave of media mergers and acquisitions since at least the 1960s. Despite its unusual magnitude, if current conditions persist for the next few years, in my opinion, this surge will continue."
Four of the 1986 media transactions topped $1 billion, and 16 of the deals were among the 100 highest-priced acquisitions of the year. The largest number, 155 media transactions, were in the print media, but the biggest price tags were in broadcasting.
Two of the three major networks changed owners. Capital Cities Communications Inc.'s acquisition of American Broadcasting Co. Inc. for $3.5 billion was the largest media transaction recorded in 1986. General Electric Co. became the new owner of NBC when it purchased the previous owner, RCA Corp., for $6.1 billion.
On the other hand, the study noted that CBS was active in selling subsidiaries as part of a retrenchment program to fight off a hostile takeover bid by Turner Broadcasting System Inc. In 1985, CBS sold its Holt publishing operation to Harcourt Brace Jovanovich Inc. for $500 million, and its music publishing business for $125 million.
Three of the largest newspaper targets were family controlled businesses. The Evening News Association, which published the Detroit News and also owned other newspapers and broadcast properties, was acquired by Gannett Co. Inc. for $717 million. A.S. Abell Co., publisher of the Baltimore Sun, was purchased by Times Mirror Co. for $600 million. The Louisville Courier-Journal Co. was also purchased by Gannett for $300 million.
The cable television sector was also active, accounting for five of the 25 largest media deals in 1986. Westinghouse Electric Corp. sold its Group W Cable, which operated 140 cable television systems, to GWCI Acquisitions for $1.7 billion. GWCI Acquisition is a consortium that includes Time Inc., Tele-Communications Inc., the nation's largest cable company, and other cable and communications companies. Sikora said that although consortium acquisitions have not been common in the media field, there is a mini-trend toward companies teaming up for large purchases.
Other major deals of 1968 include Rupert Murdoch's purchase of seven television stations from Metromedia for about $2 billion, and Turner Broadcasting Systems Inc.'s purchase of MGM/UA Entertainment for $1.5 billion. Doubleday & Co. sold its book publishing business to Bertelsmann AG of West Germany for $475 million.
The London-based advertising agency, Saatchi & Saatchi Co. PLC, bought Ted Bates Worldwide Inc., the third-largest advertising agency in the United States, for $450 million. Doyle Dane Bernbach Group Inc. merged with two other advertising agencies in two transactions totaling $395 million.
According to the study, the average premium -- the amount the purchase price exceeded the stock market value of the company a month before the deal was announced -- was 41.3 percent in 1986. This compared with a premium of 50.4 percent for acquisition targets in all industries.
Premiums over market price were highest in the print media, where the premium was 60.3 percent. Advertising and motion picture companies saw premium payments of 43.7 percent, while broadcasting properties commanded the lowest premiums, 27.6 percent.
The average price to earnings ratio for media properties was 32, compared to 29 for all industries, with print media having the highest price to earnings ratio at 42.3.
Noble said that media companies often exhibit semi-monopolistic characteristics, including high margins, above-average returns on invested capital, and excess cash flows for mature operations.
Because of these characteristics and because of the numerous potential information niches, tens of thousands of media properties have sprung up across the country, said Noble. Many are small and privately held.
The ever-growing number of new media properties means mature ones will typically show real growth below that of the markets they serve, according to Noble. For instance, metropolitan newspaper circulation increases seldom match population growth. Thus, mature media companies often find the most cost-effective way to grow is to acquire other media properties.
"Given these characteristics, the merger wave is not surprising ... only the number of such transactions in the past four years is unusual," said Noble.
Merger and acquisition activity in the media industry was fueled in recent years by low interest rates and the bull market in stocks.
Noble said the bull market helped feed media companies' expectations that their cash flow and that of their intended acquisitions will be steady or grow.