SBD/December 18, 2013/Finance

IMG Sale Comes With "Hefty Amount" Of Debt; Balance Of Power Shifting In Hollywood?

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The price paid by William Morris Endeavor and Silver Lake to purchase IMG "is far below" the $2.7B initially sought by Forstmann Little, and the deal "comes with a hefty amount of debt" in the neighborhood of $750M, according to Cynthia Littleton of VARIETY. But the acquisition is "transformative for WME." Silver Lake owns 31% of WME, but sources have repeatedly stressed that the equity firm "has no role" in managing day-to-day business. It is "unclear how the IMG acquisition would be structured -- whether as an outright merger with WME, or a different construct that keeps WME distinct from IMG." Sources said that an outright merger "is likely given that Silver Lake will likely seek to drive cost savings and consolidate administrative functions wherever possible." The combination of WME and IMG "would provide a broader revenue base" that would make an IPO "more appealing to investors." A WME-Silver Lake acquisition "would lead to significant restructuring and probably layoffs," and there also is "continued speculation that there could be further horse-trading of IMG assets" (VARIETY.com, 12/17). The HOLLYWOOD REPORTER's Paul Bond cited sources as saying that Forstmann Little a year ago "had hoped to get as much" as $3B, but "more recently it lowered its expectations" to $2.5B. Bids "dipped below that after potential suitors dug through the company's financial reports" (HOLLYWOODREPORTER.com, 12/17). THE WRAP's Lucas Shaw wrote "no one was prepared" to pay $2.5-3B for IMG (THEWRAP.com, 12/17). CNBC's David Faber said of IMG's sale price coming in lower than the agency expected, "They lost a little bit of traction in terms of sports clients and came in lower than expected in terms of EBIDA with some of the events they put together" ("Squawk on the Street," CNBC, 12/18).

RIPPLE EFFECT
: In N.Y., Barnes & Gelles in a front-page piece write a combined IMG and WME "would significantly alter the balance of power in Hollywood's business landscape, creating a mega-agency that would leap ahead of its primary rival," CAA. WME co-CEOs Ari Emanuel and Patrick Whitesell will need to "show that their own talents extend beyond hard bargaining to the leadership and organizational skills required by a vastly larger company" (N.Y. TIMES, 12/18). In L.A., Daniel Miller writes the deal for WME "ups its intense competition with CAA for supremacy in the representation business and is further evidence that the battle is moving beyond television and movies and into sports" (L.A. TIMES, 12/18). DEADLINE.com's Dominic Patten reported IMG "would function independently under the new structure, but its owners Forstmann Little would have no equity stake." The deal "would immediately boost WME’s sports representation profile to put rival CAA’s sports division in its crosshairs as the two Hollywood giants battle for supremacy on all fronts" (DEADLINE.com, 12/17). Innovative Sports & Entertainment Advisor and BOD member Bob Gutkowski said, "There are certainly content opportunities for William Morris. There are opportunities to build a television arm of IMG" (BLOOMBERG NEWS, 12/17). CNBC's Andrew Ross Sorkin said Emanuel now is "running all of Hollywood, plus the whole world of sports," and this deal will "change the world of talent management" ("Squawk Box," CNBC, 12/18). CNBC's Julia Boorstin said WME "will look to leverage IMG's big names and relationships across its entertainment and advertising business." Boorstin: "The scale of the combined company should yield more negotiating leverage across its deals" ("Squawk on the Street," CNBC, 12/18).
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Finance, IMG, William Morris Endeavor

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