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Deal bottleneck clogs street; volume of entertainment transactions approach '96 level in first 8 months.

It's still boom time on Wall Street for investment bankers focusing on the entertainment sector. The deals keep coming, particularly in cable and broadcasting, ensuring there is more than enough work to go around.

The surge in activity is so great, bankers say, that it has helped blunt the impact of several new banks jumping into the entertainment sector - and the decision by some investment banks to set up entertainment departments.

Of course, the size of deals doesn't match those of two or three years ago. Whereas Disney spent almost $20 billion to buy ABC in 1995, a big deal nowadays is Westinghouse Electric Group's $1.5 billion acquisition of Gaylord Entertainment's cable networks or Fox Kids Worldwide's $1.8 billion purchase of Intl. Family Entertainment from Pat Robertson and his son Tim.

Nevertheless, the volume continues to grow. By mid-August, 431 U.S. media and entertainment deals worth $49.6 billion had been announced. According to Securities Data, this compares with 737 deals worth a total of $61.5 billion for all of last year.

Cable programming, broadcasting and increasingly theater exhibition are the hot areas for specialists in mergers & acquisitions, along with asset sales by major entertainment conglomerates. On the other side of the business, the long period of low interest rates has prompted plenty of debt-raisings, including high-yield and investment-grade debt issues.

The banks doing well are those with both extensive advisory and capital-raising capacities, such as Goldman Sachs, Merrill Lynch, Bear Stearns, Morgan Stanley, CS First Boston and increasingly, Salomon Bros. and Donaldson Lufkin Jenrette. Commercial banks expanding into Wall Street, like Chase Manhattan and JP Morgan, also are making their presence felt.

At the same time, smaller boutique firms like Furman Selz are doing more business, both in underwritings and advisory work. Lazard Freres, long a big player in M&A, continues to rank highly.

And the cable system firms, such as Waller Capital and Daniels & Associates, are benefiting from the reshuffle of cable systems under way from the major cable operators such as Tele-Communications and Time Warner.

Top advisers

According to Securities Data, in the first eight months of 1997, Goldman, DLJ and Lazard were the top three advisers in the entertainment, broadcasting and publishing sectors, while Merrill, Lazard and Goldman were the top three for all of 1996.

In capital-raising for the year so far, Merrill, Morgan Stanley and Salomon Bros. lead the debt-raising table, Securities Data says, while Bear, Goldman and Morgan Stanley lead the IPO manager table.

Asset divestments by the conglomerates have become a big area of work for investment banks, as companies such as Time Warner, Disney and Viacom respond to pressures to reduce debt or simply narrow the focus of their businesses. Disney has been the biggest seller, raising almost $2.8 billion from the sale of the newspaper and magazine publishing interests inherited in the ABC acquisition.

First Boston, Merrill Lynch and Bear Stearns all had a role in those sales, with the biggest being the $1.65 billion sale of the Kansas City Star and the Fort Worth Star-Telegram newspapers to KnightRidder. First Boston and Bear Stearns advised on the sale, and Goldman Sachs advised the buyer.

Similarly, First Boston advised Viacom on the $1.075 billion sale of its radio station group to Evergreen Media and Chancellor Broadcasting. Salomon advised Comcast on its $321 million purchase, with Disney, of Time Warner's 58% stake in E! Entertainment.

Cable consolidation

The E! deal is one of a number of cable programming companies sold in the past year, reflecting a consolidation in the sector. Time Warner's $8 billion acquisition of Turner Broadcasting "set the ball rolling," says Bear Stearns senior managing director and head of media and entertainment group Alan Munchin.

Since that deal closed last fall, Gaylord sold its cable networks to Westinghouse's CBS, Family Channel's parent Intl. Family Entertainment was sold to News-Saban's Fox Kids joint venture, and News and Liberty Media have broadened their cable sports joint venture by bringing in Cablevision Systems.

Liberty and Black Entertainment Television founder Bob Johnson also proposed a buyout of the public shareholders in BET, advised by Salomon Bros.

The consolidation extends to smaller networks. Scripps-Howard, which owns Home & Garden Network, acquired control of the Food Network from A.H. Belo, advised by Furman Selz.

Bear Stearns advised Scripps on the Food Network deal, Cablevision on the purchase of 50% of Madison Square Garden and the News-Liberty sports deal. Bear also worked with Goldman, advising IFE on the sale to Fox Kids. Merrill advised Gaylord on the sale of its cable networks.

Consolidation also has occurred in satellite television. One of the biggest deals of 1997 was Primestar Partners' conversion to a public company through TCI Satellite Entertainment, and the new company's acquisition of News Corp.'s American Sky Broadcasting. Morgan Stanley advised Primestar on both deals.

Broadcast still hot

Broadcasting, in both radio and TV, continues to be hot, although consolidation of both sectors is now so advanced that the pace of deals is beginning to flag. First Boston advised Argyle Television on its merger with the Hearst's television group, while J.P. Morgan advised Hearst in that deal.

Hicks, Muse, Tate & Furst was advised by Chase Manhattan's securities group in its $1.7 billion purchase of Lin Television, while the seller was advised by Morgan Stanley and Wasserstein Perella.

Hicks Muse also spent $2.1 billion to buy SFX Broadcasting, a deal in which SFX was advised by Lehman Bros. and Star Media Group. At the end of last year, Westinghouse Electric Group completed its acquisition of Infinity Broadcasting, which involved both Salomon and Chase Securities as advisers to Westinghouse and Merrill Lynch as an adviser to Infinity.

Earlier this year, Belo completed its $1.6 billion acquisition of Providence Journal, in a TV station deal where Belo was advised by Furman Selz and Providence by Bear Stearns.

Schroder & Co., until July known as Schroder Wertheim, advised Hicks Muse on its acquisition of four small-market TV stations in what subsequently became STC Broadcasting. Schroder also managed a $100 million debt offering for STC.

Exhibition heats up

Theater exhibition is expected to be the next focus of M&A, with Norman Lear's Act III Theaters and United Artists Theatres Circuit putting themselves on the market. DLJ is advising Act III and Merrill Lynch is advising UATC (Merrill Lynch investment partnerships control UA).

Chase Securities' role in the Infinity and Lin deals and J.P. Morgan's role as an adviser to Hearst highlight how the commercial banks making their presences felt in investment banking. Chase, long a leader in film financing out of Los Angeles, has a growing investment banking business based in New York. Its mandate includes advising Home Shopping Network on its acquisition of Silver King Communications, along with Wasserstein Perella. First Boston advised Silver King.

Another bank to jump into the fray is UBS Securities, which has been particularly active in capital-raising, using a security it devised to raise $1.5 billion in a series of issues for Time Warner and Cox Communications. UBS also advised Spelling Entertainment on the feasibility of a public offering for its Virgin Interactive unit.

J.P. Morgan also is building up its media and entertainment effort. Aside from the Hearst deal, it has prospered from its link with MGM. The bank advised the studio on its $573 million acquisition of Orion Pictures and is a co-lead manager on MGM's proposed public offering, along with Merrill Lynch. Morgan now can boast "one-stop shopping:" it put together MGM's bank financing, equity underwriting and provided advice on two big acquisitions.

"We are client-driven and so being able to offer up a palate of products to help sponsor a client through the financial markets is what we are all about," says Ken McCormick, managing director at Morgan and head of the firm's Los Angeles office. In this arena, Morgan has plenty of competition from the major investment banks.

Entertainment relationships

"The deals we are working on today are based on client relationships that have been building steadily over the years. Clients need sound, independent strategic and financial advice delivered on a consistent basis over the long-term - not only when they are in a transaction," says Rob Wiesenthal, who heads the entertainment investment banking effort within CS First Boston's media and telecommunications division.

First Boston become one of the first investment banks to align itself with Credit Suisse when the two firms formed a European joint venture in the early '80s. That alliance evolved to a full merger, which became effective Jan. 1. The link has enabled First Boston to offer bank financing to clients, as Chase and Morgan now do.

Not wanting to be left behind, the other big investment banks, like Goldman, Merrill, Morgan Stanley and more recently DLJ, have in recent years set up bank funds to ensure they can offer bridge financing or other forms of bank debt to clients.

"We have responded. We have one of the most active bank debt funds. We act as a lead and co-manager on a significant number of straight bank financings," says David Dennis, a managing director at DLJ.

While the top half-dozen banks have increased their dominance on Wall Street, some small boutique firms are also busier. Furman Selz, for instance, was the only small firm co-managing the MGM stock offering. Its selection undoubtedly was influenced because it valued MGM's film library for the lending syndicate last year.

Furman has made a name for itself doing these valuations and now is overseeing the auction of the Epic film library, being sold by the French government agency CDR. Michael Garin, executive VP of Furman Selz, claims the firm's success is a result of"a unique combination of operating experience and really outstanding execution skills."

Garin says Furman historically has not competed in deals where banks could use their balance sheets to help provide financing. But that has changed in the wake of this summer's acquisition of Furman by Dutch bank ING Baring, he says.

Similarly, French commercial bank Societe Generale recently allied itself with Los Angeles-based Bannon & Co. and the joint venture now works on both capital-raising and M&A. It's now working on the sale of Ciby 2000 and acting as financial adviser to film indie Trimark Holdings and U.K.-based music entertainment company Ministry of Sound.

The alliance has "significantly increased the services and financial muscle that we can provide to our clients at all levels of the balance sheet," says Scot Vorse, managing director of Societe Generale Bannon.

Similarly, Montgomery Securities has been acquired by Nationsbank and the deal is expected to prompt Montgomery to focus more on investment banking in areas like cable where Nations is a big lender. Montgomery started an entertainment investment banking effort last year and in recent months represented billionaire Paul Allen on the swap of his stake in Ticketmaster for stock in HSN and the sale of control of internet publisher Starwave to Disney.

Lazard Freres, perhaps the best known boutique investment bank, doesn't have any lending facility, although it has established a relationship with some big foreign banks to provide ready access to capital.

But Peter Ezersky, a managing director at Lazard and head of its media and communications group, says that what sets Lazard apart is its "knowledge of the industry and relationships with the people who are moving it."

Lazard advised Comcast on Microsoft Corp.'s $1 billion investment in the cabler. Lazard also played a role in most of ITT's divestments this year, including the sales of its 50% stake in Madison Square Garden and WBIS.

Allen & Co. similarly, focuses on deals involving long-term clients although it hasn't been involved in the big deals as much as in past years. But long-term clients like News and NBC still provide work. Allen advised News on its acquisition of Heritage Media. Allen also did advisory work on deals in which it has invested, such as Classic Sports Networks' sale to ESPN.

The entry of new players like commercial banks, (and a few new small operations like Robert Greenhill's Greenhill & Co. and Roger Altman's Evercore Partners), is hurting mainly the middle-tier outfits such as Smith Barney and Lehman Bros. Evercore, for instance, advised NBC on a broadcasting partnership with Hicks Muse and Dow Jones on the sale of its interest in WBIS.

Smith Barney and Lehman have carved out specialties, however. Lehman, despite losing well-known bankers like Jill Greenthal and Jeff Sechrest, still is doing well in cable and broadcasting - helped by a strong research presence through analysts Larry Petrella and Tim Wallace. Lehman led Jones Intercable's recent equity offering.

Smith Barney in turn, has focused on broadcasting, offering merger advice and raising capital for clients Sinclair Broadcasting and Chancellor Broadcasting.
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Title Annotation:New York: Entertainment Town: Business; entertainment industry transactions with investment banks and financial advisers
Author:Peer, Martin
Date:Sep 29, 1997
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