Recession watch - Part VI

Corporate finance activities
Share prices have wobbled hugely since the Sept 11 atrocities - some such as Disney which runs theme parks and an advertising-dependent TV network dropped 17% in first trading after the attacks and then continued to sink. But most have recovered much, if not all the ground. That, however, does not mean that the sector's finances are unchanged. Investors are more nervous about media stocks now than they were in August and the string of poor results since then would appear to justify that mistrust.

One media analyst with a pan-European investment group, who for obvious reasons asked not to be named, said: "right now you would be safer putting your money under the bed than investing it in media shares." Profit warnings have come from AOL Time Warner, Pearson, RTL and ProSieben.

But it would be an ill wind that does no man any good. At the right moment, the weakening of the sector's finances will be an opportunity for some.

Andersen Corporate finance one arm of accountancy giant Andersen had already forecast that this year would see a slowing of merger and acquisitions activity in Europe after the record breaking volumes of 2000 (Screendaily Sep 13, 2001). That prediction was based on slowing economic growth, the pricking of the dot-com bubble and the drying up of Neuer Markt finance for the German raiders.

With the events of Sept 11 serving to further undermine business confidence and stockmarket valuations, Andersen is now predicting a further drop in m&a. Those companies with cash will emerge strongest from this. But the venture capital companies see no reason to rush in just yet. They figure that in six months time prices will be lower and some of the dust will have settled. That's when they will start to move in.

"M&a is cyclical. It is at its busiest when a market is very frothy and when recovery has begun. Right now we are on the downslope," says Chris Tidball, head of Andersen Corporate Finance's media team.

There will have been an impact before that though. The tumbling share markets have dealt a major blow to News Corp's ambitions to buy in General Motors/Hughes Electronics' satellite TV subsidiary DirecTV. While GM's $40bn price tag now seems a little rich, Rupert Murdoch's News Corp was planning to pay a large chunk of the asking price in shares and then to float its new planet-spanning satellite operation SkyGlobal on the stockmarket. While some commentators suggest that DirecTV would do better in the hands of a media group, neither News' shares nor an IPO look anything like as appetizing as they did a few months ago. Other operations rumoured to be consolidating are France's two rival digital satellite platforms; Vivendi Universal's CanalSatellite and TPS, owned by a TF1-headed consortium.

The sick IPO market also did for News Corp ally Kirch's plans to float off its pay-TV division. Instead, the pay activities have now been folded into the already quoted ProSiebenSat1 free-TV unit. And in the last week, the UK's IAC Film postponed its planned listing on the Alternative Investment Market (AIM). Chairman Guy Collins said "the market conditions were so difficult that it made more sense to wait."

Bertelsmann says it is still on course for a partial flotation in 2003, despite last week announcing results that were only in profit due to a large capital gain. Bertelsmann, however, has the benefit of two more years for things to come right and anyway is a unique property including the world's third largest music group and the world's largest book publisher.

Others, however, have managed to get their flotations away, such as UK video concern Home Entertainment Corporation which listed on AIM, having raised $17.2m (£12m) from a private placing beforehand.

But for most others the future is made much bleaker by the recent events, making the previously unthinkable now common currency among financial circles. For instance it has been widely speculated that Disney is open to takeover.