Articles / Let’s Make a Deal part1

Let’s Make a Deal part1

Posted on: November 4th, 2011 by No Comments

Ken Sonenclar is a managing director at DeSilva + Phillips, LLC, a New York investment bank specializing in media.

This brutal year in M&A is mercifully winding down. The global credit squeeze, deep recession, and shrinking valuations have kept deals in check. But with the economy rebooting and many big media and tech companies sitting on piles of cash, conditions are ripe for striking big deals next year. Here are five deals that would go a long way towards lifting us out of the deal-making doldrums and also help reshape the media sector in important ways.

NSDQ: MSFT) should buy Research in Motion:

Last year, desperate to battle Google (NSDQ: GOOG), Microsoft nearly dropped $45 billion on Yahoo (NSDQ: YHOO). For those old enough to associate 360 with IBM and not Anderson Cooper, this proposed deal recalled the mating dances of Burroughs, NCR, Univac, Control Data and Honeywell (yes, the thermostat company made big computers once upon a time), all while IBM’s only true menace was the Justice Department. But the search race is finished. Google, whose only true menace is also the Justice Department, has lapped the field.

The smartphone/mobile platform race isn’t over yet, but it will be before Redmond can do anything on its own about it. The price for RIM (NSDQ: RIMM) would likely top $40 billion, but at least Microsoft would own a market-leading company with plenty of juice left, not to mention a product that an awful lot of adults would sooner die than live without. If Microsoft can deeply and seamlessly integrate new BlackBerries into Windows and Office, Chairman Steve (Ballmer, that is) will see a million apps bloom. Not only will this trip up Apple’s designs on enterprise-wide iPhone sales, it will pull Apple-like crowds into Microsoft’s new retail outlets. That would be something to yodel about.

Google should buy Clear Channel (NYSE: CCMO) Outdoor:

Google has sought to extend its advertising realm beyond the web, to radio and newspapers, most notably and most miserably. Out-of-home advertising presents a different opportunity. Static billboards and signs are going digital, allowing for continuous refresh and an infinitely more dynamic environment that suits the on-the-go way we live now. Clear Channel is the largest U.S. operator of outdoor advertising, but the company and its parent are choking on nearly $20 billion of LBO debt, perhaps stifling its ability to fund next-gen conversions. Meanwhile, a management shuffle within the controlling family is underway. Google could not only speed the digital build-out, but also introduce auction buying to the staid world of out-of-home.

And things get really interesting when Google’s algorithms start crunching terabytes of real-time data about the soccer mom passing a particular sign and then serve up an ad targeting her and nobody else but her. While this may seem like some futuristic notion, Google is much closer than you think to being able to pull it off. Out-of-home has always at its heart been a real-estate play, but does Google need to buy the signs? An argument could be made against it, but owning certainly sweeps aside potential pockets of resistance. And, because out-of-home is an advertising-only environment (i.e. content-free), the company avoids the political squabbles it hates. Plus, it gets to do no evil outdoors.

Ted Turner should buy back CNN and fold in The New York Times:

Ted Turner is bored. CNN is squeezed between the jingoists at Fox News and the pinkos at MSNBC. The New York Times (NYSE: NYT) needs to spread its cost base while reasserting its editorial might. A ménage a trois made in heaven? The problem with most potential acquirers of the Times is that they dilute the brand merely by association. Not so with CNN-founder Turner, a legitimate, new-wave press baron who knows that great reporting can still turn a buck and has said recently that he is embarrassed by the increase in fluff on CNN. The Times already has its reporters Twittering, filing video via satellite, and filling the Sunday talk shows.

Times/CNN would be the Tiffany of world news organizations, even if Turner’s environmentalism had him ditch the Times’ print edition before the economics forced him to. Does Jeff Bewkes care about owning the best news network? Probably a lot less than Bill Paley did, which wasn’t much, so it’s merely an issue of price. As for the Sulzbergers, Turner’s offer would have to be rich enough to turn the family’s collective head, but this year’s near-death experience probably slashed their expectations, and Turner is probably the best custodian for this public trust that will come along. Turner may have a harder time prying loose another Time Warner (NYSE: TWX) property he lost but reportedly covets: the Cartoon Network, his apparent Rosebud.

CBS (NYSE: CBS) should buy Meredith:

Both by acquisition and savvy management, NBC has grabbed an enviable position in media for women. Yes, they overpaid and haven’t done much to leverage iVillage, but it remains a vital web property. Meanwhile, NBC has won big female audiences with quirky programming on Bravo and Oxygen. The peacock network’s lead is hardly unassailable, but rival CBS needs to buy its way into a competitive position. Meredith (NYSE: MDP) is a superbly run company that demonstrates magazines have not all been consigned to the old-media dustbin. Their roster of brands remains robust, though some are as old as Methuselah. (The company also owns 13 broadcast stations, including CBS affiliates in Phoenix, Atlanta, and Hartford, though whether CBS would keep them is an open question under FCC rules.)

Taken as a group, Meredith’s magazine titles span all the stages of a woman’s life that advertisers care about. In addition, the company has made some thoughtful web acquisitions in content and social media, has extensively licensed its brands, and has acquired a stable of marketing-services firms that make money on their own but also position their clients Meredith’s advertisers to spend, spend, spend. Extracting real value, though, will require CBS to extend these franchises across their web and broadcast/cable operations. As a whole and in parts, Meredith is a solid performer, like CBS, and the two should grow old and generate cash together.

(Fill in the blank) should buy LinkedIn:

By building as relentlessly as the Tholians, LinkedIn has outdistanced every other online business network. All web communities are ephemeral until the switching costs grow too daunting or the network effects render them too useful. LinkedIn has passed both those markers, and it’s hard to imagine any contender knocking the six-year-old company off its perch. It has taken people awhile to feel comfortable navigating the sometimes-murky waters of business social media or social business media: Where is the line between the personal and professional? (Thanks, but no pictures of your Kenyan safari.) Is it OK to keep your resume permanently posted (Apparently so.)

The guiding hand of management comes into play when necessary, but LinkedIn’s members 50 million and growing now drive the community. And because it is useful in so many ways as the ultimate networking tool; as a remarkably diverse source of functional information; as a medium that fosters just enough personal interchange (Facebook is there if you need more); as a decent advertising platform many buyers would love to own this high-value, global community. Might LinkedIn go public instead? Sure, and an IPO filing may serve as a stalking horse to prod a bid from McGraw Hill (already an investor) or Reed Elsevier (NYSE: RUK) or Dow Jones/News Corp (NYSE: NWS). Or Corporate Executive Board or even Monster Worldwide (NSDQ: MNST). Or from all of them.

Any deals that you think could make life interesting please share?

As I always say, Keep it moving and stop taking yourself so seriously!

Gary R. Lewis