What a difference a week makes. At our Innovation Series breakfast this past week, I was planning to discuss my recent article, The "New" Media Landscape: CNBCUTWC, 21stCFTW, ATTDirecTV, T-Sprint. We sent out our pre-breakfast discussion guide just as the Twenty-First Century Fox/Time Warner and Sprint/T-Mobile deals blew up. This made for an awesome, lively discussion about what might have been, what was going to happen and most importantly... what's going to happen now?
At this writing, the "new" media landscape is looking quite a bit like the "old" media landscape. But don't be fooled by a few bumps in the road... the fun is really just about to start.
21st Century Fox/Time Warner (21CF/TW)
In our last episode, 21CF was in an epic battle to take over TW. Jeff rebuffed Rupert's advances, and... to everyone's amazement, Rupert withdrew. Negotiating tactic? Gamesmanship? Test?
Perhaps the market knows... 21CF's stock (Nasdaq: FOXA) dipped a bit on the day the news broke, but it settled down around $34 at the end of the day. TW's stock (NYSE: TWX) fell from $85.19 down to $74.90 after the news and now sits around $72 per share - more than a 15 percent drop. Obviously TW shareholders were surprised. They had pushed the stock to a 52-week high of $88.13 in anticipation of the deal.
Rupert said, "Our proposal had significant strategic merit and compelling financial rationale and our approach had always been friendly. However, Time Warner management and its board refused to engage with us to explore an offer which was highly compelling..." Well-played, Rupert.
Does 21CF have the wherewithal to takeover TW? Do they still want to? Only Rupert knows. But this is an acquisition that make perfect business sense. Tune in next week for another exciting episode.
Don't bother to stick a fork in it... it's not done. After months of essentially acting like one company, Sprint called off talks to acquire T-Mobile. The move ended a nine-month bid to acquire T-Mobile. Sprint's CEO Dan Hesse was shown the door, having been replaced by Marcelo Claure, the founder and CEO of Brightstar Corp (another SoftBank subsidiary).
What really happened? Almost everyone I've spoken to says that getting the deal through regulatory was going to be impossibly difficult. The market hammered both stocks -- Sprint (NYSE: S) dropped about 19 percent, from $7.27 to $5.90 while T-Mobile (NYSE: TMUS) dropped about 9 percent, from $33.91 to $30.99 (its steepest decline since May 2013). It has since slipped to below $30.
Now that this has blown up, you can expect Iliad SA's $15 billion bid for a 56.6% stake of T-Mobile US to be reconsidered. T-Mobile says we're not going to see a T-Free, but Iliad (owners of France's Free) is talking with various US-based cablers to up its offer. There's also a chance that Charlie Ergen will resurface. DISH would have a much easier time getting FCC and DOJ approval. The plot thickens...
Guessing At The Future Again
Now that 21CF/TW is off, we can expect a few months of "old media executive self-hypnosis." This is a technique that allows seasoned professionals to believe that this Internet thing is a fad, that a hit show will solve most problems and that three hit shows will solve every problem. (Substitute movie or album into the previous sentence as needed.)
What other businesses might be in play? If you write the names of all the Viacom and CBS assets on Lego blocks (throw in the Sony assets just for fun), you can build some awesome structures.
We certainly have not heard the last of 21CF and TW. Someone is buying TW at some point. At $105-$110 per share, the shareholders will insist. Who could pay that? Email me your picks. I'll share a few with you.
Of course, if the stock starts going south, that original $85 offer is going to start to look good. Is that what Rupert is counting on? He hit TW hard by withdrawing his bid. But TW's resolve is steely! And, in various statements, both companies assured shareholders that they were going to get back down to business. But what does that mean?
A force march to increase EPS will get the share prices up, but unless both companies make significant investments to adapt to changes in consumer behavior, neither will fare well. Investing in the platforms and toolsets required to get to the future first will negatively impact EPS in the short term. It's either/or, not both. This strategic conundrum will play out over the next 18 months across the entire old media landscape as on-demand online and mobile media consumption starts to exceed scheduled one-to-many broadcast media consumption. Shareholder value vs. Enterprise value vs. Share Price. It's game on!