The mountains are as gorgeous as ever, the deal climate not so much as boutique investment bank Allen & Co. prepares to host its annual Sun Valley Retreat. After the arrival of the guests on Tuesday, the official activities will start on Wednesday.
The media mogul’s annual ritual of whitewater rafting and technical talks is a 40-year tradition after the Fourth of July. It was suspended in 2020 during the worst of Covid, but returned last year in a stripped, masked and vaccinated version, shortly after two big deals were announced – the Warner Media/Discovery merger and Amazon’s proposed acquisition of MGM. The first comment made by then-Discovery CEO David Zaslav to the Sun Valley press squad a year ago was, “We’re not done yet.”
Now CEO of the new Warner Bros. Discovery, he’ll likely be more cautious as the heavily indebted company tries to cash in on promised $3 billion in cost savings and weather a brutal stock market, Wall Street reversal, alongside its peers in streaming , rising inflation, rising interest rates and perhaps a looming recession. Zaslav’s attendance is confirmed, along with WBD Chief Revenue and Strategy Officer Bruce Campbell, we hear.
Those two deals rocked the media in a tussle over who lost and what might come next. Paramount (known a year ago as ViacomCBS) wanted a big deal, as did NBC Universal’s parent company Comcast. Both had eyed Warner Media. Paramount non-executive chairman and controlling shareholder Shari Redstone will be back. CEO Bob Bakish has been invited but cannot attend.
Fox CEO Lachlan Murdoch and COO John Nallen are confirmed. So did Ken Yoshida, CEO of Sony Group Corp., and Jim Ryan, head of PlayStation. Casey Wasserman and Mike Fries too.
Not all invitees necessarily attend. But Rupert Murdoch is a regular and Bob Chapek – a new three-year deal now in hand – was there last year. Also among the invitees are tech CEOs, including Elon Musk, Apple’s Tim Cook, Meta’s Mark Zuckerberg, Amazon’s Andy Jassy and Alphabet’s Sundar Pichai. The list includes a number of top-of-the-top media executives — companies that may or may bank with Allen & Co. — and executives from corporate clients.
By accommodating executives in close proximity and in khakis, the Sun Valley conference is credited with planting the seeds for mergers – from Disney’s 1995 purchase of CapitalCities/ABC to Amazon founder Jeff Bezos’ takeover of the Washington Post in Year 2013.
For invited Netflix co-CEOs Reed Hastings and Ted Sarandos, the year since Allen & Co. 2021 has been a big one. The stock plunged 70% year-to-date after losing subscribers for the first time last quarter, announced it would lose even more in the just-ended June quarter, and suddenly revealed plans to launch an ad-supported service, even if employees are laid off. As a result, Netflix is increasingly viewed as a takeover target — an unusual shift.
An independent Netflix “is gone,” a financier predicted. It is a very valuable platform, but “no longer a growth story”. Hastings and Sarandos “didn’t live up to Street’s expectations” and lost a few hundred million dollars in market cap in one fell swoop, he said, referring to the recent post-earnings video call as co-chiefs discussed the subscriber shortage.
Over the next 18 months, “the environment will become clearer,” he said.
That’s also about the time buyers might consider purchasing WBD. The structure of this deal would result in a hefty tax penalty for any acquirer within two years of closing.
What happens between now and then nobody can imagine. The Netflix effect has spread to shares of other streamers as investors question the viability of the high-priced but still low-profit business. Meanwhile, pent-up demand, the Russia-Ukraine war and ongoing Covid-related supply chain issues have fueled sky-high inflation. Matching rate hikes by the US Federal Reserve risk a recession, a fear that has hit advertising and could spill over into other areas of entertainment.
As a result, the Allen & Co. crowd is gathering just after the S&P 500 wraps up its worst first half since 1970 with a decline of more than 20%. The Nasdaq was worse, losing nearly 30% and the Dow was down 15%. Tech stocks were hit the hardest, but media lagged broader markets as the second quarter ended yesterday.
Deals are still in the news. The long-standing CAA-ICM merger has just completed (Allen & Co. advised CAA). Elon Musk’s Twitter deal (Allen is an advisor to Twitter) and Microsoft’s purchase of Activision Blizzard (with Allen advising Activision) are pending.
But a recent M&A outlook from PwC predicted a slowdown in the biggest M&A crowds in major media – which appear to have just picked up steam over the past year – amid low stock prices and high interest rates. Paying with shares is now limited and accessing the debt market is more expensive. Companies don’t like to sell at a low point.
Endeavor just cut a pending $1.2 billion cash and stock purchase for sports betting platform OpenBet by $400 million to $800 million yesterday.
And he’s not always right, but he’s not alone: Zuckerberg reportedly told Meta staff today, “If I had to bet, I’d say this could be one of the worst downturns we’ve seen in recent history .”