For sale: One big-league baseball team. Can be seen playing in World Series; asking $200 million OBO. One NHL hockey team: $200 million (duck mascot included). One publishing house, $1.22 billion; will sell piece by piece. Also: Will consider dumping half-stakes in two cable channels if price is right.
Let the big media fire sale begin.
Only two heady years ago, the buzzwords in the media industry were "merger" and "strategic acquisition," which were supposed to lead to "combined revenue" and "synergy." Today, the operative phrases are "sales" and "non-core assets," which the companies hope will lead to "debt reduction" and "strategic fit."
It's a whole new language -- and way of thinking -- for media giants such as AOL Time Warner Inc., Vivendi Universal SA, Walt Disney Co. and News Corp. Thanks to the enormous debt incurred by the late-1990s media company buying sprees coupled with a disastrous 2001 advertising market and overly optimistic revenue projections, the mega-media companies are beginning to disassemble -- or are at least beginning to think about it.
Sinking stock prices have left them little choice.
"I think it's responsible, what they're doing right now," said Bill Battino, a partner with IBM Business Consulting Services and a media analyst. "In my view, it was a 'when,' not 'if' they had to get around to making hard calls. [Companies] are starting to pare properties with lower trading multiples. That is a sign of strong management."
Yesterday, debt-saddled Vivendi Universal -- the world's second-largest media giant -- announced it would sell its Vivendi Universal Publishing to Lagardere, a French publisher that owns Hachette Filipacchi, the world's largest magazine publisher. The unit is valued at $1.22 billion.
In August, Vivendi Universal said it would sell Houghton Mifflin Co. publishers, which it acquired in 2001 for $2.2 billion. The company is hoping -- but perhaps not expecting -- to get its money out of Houghton Mifflin. So far, bids have been so disappointing the company has essentially removed the publisher from the sales block. If an acceptable offer does not emerge by close of business tomorrow, the company will have to restart the auction process.
Meanwhile, the media colossus has halved staff at its Paris headquarters and New York office.
Sports teams are some of the highest-profile assets being weighed for the auction block. At Disney, chief executive Michael D. Eisner is searching hard for a buyer for the Anaheim Angels baseball team and the Mighty Ducks hockey squad -- even as he hangs out in the clubhouse of his Angels, who are making a Cinderella run through the World Series.
After the Angels clinched their trip to the series by beating the Minnesota Twins, Eisner was doused with champagne in the Angels locker room. "I've spent my whole life in the entertainment business, and it's basically a business of blockbusters," Eisner said at the time. "Today, our blockbuster is the Anaheim Angels."
A little more than two weeks earlier, however, Eisner had told Goldman Sachs analysts: "We expect an offer for the Angels. If we don't [get one] we will sell the Angels reluctantly -- and the Mighty Ducks." In September, Paul Pressler -- the former Angels president who now heads Gap Inc. -- had said the team wasn't a "strategic asset" in the Disney empire. After Moody's downgraded Disney's credit rating to "Baa1" this week, money-losing franchises now seem like even more of a luxury.
Disney has hired Lehman Bros. Inc. to find a buyer for both the Angels and the Mighty Ducks, which Disney bought as an expansion team in 1992 for $50 million. Disney wants the teams to stay in Anaheim, no matter who owns them. Eisner has said his company may consider keeping a chunk of the Angels if it can find anyone to buy even a part of the club and help relieve Disney's $14 billion debt load. Disney bought the Angels for $140 million in 1996 and poured several more million into renovating the team's stadium, a makeover handled by Disney's famed "imagineers."
Owning a team was once seen as a way to extend a company's brand and cross-promote its properties. The Mighty Ducks' first draft choices were paraded down Disneyland's Main Street and the company sold ticket packages that combined theme-park admission and a Ducks game. The studio produced a 1992 movie of the same name.
But sports franchises essentially exist to suck down owners' money. Not even success in the standings translates to profitability. As Washington Capitals owner Ted Leonsis, vice chairman of AOL Time Warner, told Washington Post editors and reporters recently, "the only way to make money from a sports team is on the exit," meaning when the team is sold.
Earlier this month, AOL Time Warner chief executive Richard D. Parsons was pressed by analysts, after saying the company was considering selling "non-core" assets, to name what some of those assets might be. He listed the company's three professional Atlanta sports franchises -- the Braves baseballers, the Thrashers hockey team and the Hawks basketball squad. Other assets the world's largest media company considers non-core include its 50-percent stakes in the Comedy Central and Court TV cable channels, neither of which offers the growth potential of HBO, another AOL Time Warner property.
(Further hurting the balance sheet at AOL Time Warner was yesterday's third-quarter earnings call. The company announced it would restate earnings for the past two years, shaving $190 million in revenue off the books.)
AOL Time Warner stressed that none of those assets is on the block and that there are no discussions underway to jettison the sports teams, which were part of Time Warner Inc. before it merged with AOL in 2001.
If a team is part of a larger media empire, its cross-platform value tends to diminish over time, analysts say.
The Braves, for instance, "already have full distribution in U.S. homes, so owning the Braves no longer gives Turner Networks leverage over cable systems," said Jordan Rohan, a media analyst with Soundview Technology Group. It's no longer necessary for one company to own both a sports team and a distribution network, such as a cable system, he said.
Further, Rohan added, "player salaries have been spiraling out of control, so operating losses incurred in owning teams have gotten larger." For a company with $26 billion in debt, such as AOL Time Warner, owning a money-pit sports team is hard to justify to shareholders, analysts said.
The Los Angeles Dodgers are owned by Rupert Murdoch's News Corp., which may also designate the team as a non-core asset and put it on the block. Murdoch paid $311 million for the Dodgers in 1997 at the same time he announced the launch of Fox Sports Network. Any aspirations News Corp. may have had about using the cable sports network to make the Dodgers another "America's Team," as Turner did with his Braves via his TBS superstation, have failed to materialize. Murdoch did, however, outmaneuver Disney to lock up broadcast rights for Angels and Ducks games.
One move that News Corp. will make by the end of the year to dump non-core assets is to work out a deal with Cablevision Systems Corp. so Murdoch's company can jettison its stake in Madison Square Garden, MSG Network, the New York Knicks, the New York Liberty WNBA team and the New York Rangers.
News Corp. will swap its stake in Cablevision's properties for Cablevision's stake in News Corp.'s Fox regional sports networks, a source familiar with the deal confirmed. Or News Corp. will take cash from Cablevision instead. Either way, News Corp. gets out of its ownership of sports teams and venues.
For France's Vivendi Universal, the debt accumulated in the buying spree that made it a media titan -- at least on paper -- nearly forced it into bankruptcy this summer. The company had to secure $3 billion in loans to meet payrolls.
Vivendi is a crazy-quilt conglomerate that spent the past two years trying to convert itself from a 19th-century French water and sewerage company into a 21st-century media and entertainment company. Late last month, chief executive Jean-Rene Fourtou laid out his plan to dump $12 billion in non-core assets over the next two years. Vivendi Universal will sell more of its interest in Vivendi Environnement, the French water company, but retain its most valuable assets, Universal Pictures movie studio and Universal Music Group, the world's largest music company.
Analysts say big media companies are searching for a balance between diversification and streamlining. For instance, because the government is easing ownership restrictions on television stations, media companies that own only a few stations may find it appealing to make some fast money and ease debt by selling stations to larger media companies. On the other hand, the companies know that television stations can be counted on for seasonal revenue -- such as political and sports advertising -- when other units may be slumping.