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From Exiles To Empire Builders?


Metro-Goldwyn-Mayer Inc.'s (MGM) $5 billion sale to a Sony Corp.-led (SNE) consortium won't close for a few more weeks, but Alex Yemenidjian, the MGM chairman who crafted the deal, is already thinking about his next gig. According to filings by the studio, the 49-year-old dealmaker will collect more than $140 million when the Sony transaction closes, enough to start his own company. Even so, Yemenidjian has been flooded with offers from potential investors -- including MGM majority owner Kirk Kerkorian -- to bankroll his next venture, be it in the media world or perhaps a casino. "A lot of people want to invest in me," he boasts.

ON THE OUTSIDE

These days, moguls in exile -- self-imposed or otherwise -- are the hottest act in show business. After years of masterminding relentless consolidation, a small but growing corps of onetime movers and shakers is now watching from the sidelines as media behemoths split up. Indeed, in the wake of Viacom Inc.'s (VIA) Mar. 16 breakup announcement, the new media buzzword is deconsolidation. And who better to preside over new media combinations built out of shards of the old? "A lot of the same guys who put the pieces together for these large companies are now on the outside with the knowledge of how they work and the means to get them back," says former Universal Studios CEO Frank J. Biondi Jr., whose Waterview Advisors has snapped up stakes in recent years in cable and other assets. Industry heavyweights such as former Viacom Entertainment Group CEO Jonathan L. Dolgen, former AOL Time Warner Chief Operating Officer Robert W. Pittman, and ex-Telecommunications Inc. President Leo J. Hindery Jr. are all lining up money for deals.

At the same time, a slew of private equity funds and other investors are queuing up to help share the risks, enticed by the industry's traditionally strong cash flow. Today, deep-pocketed investors such as Providence Equity Partners, Bain Capital, and Texas Pacific are just waiting to plunk down cash on media properties they hope will get a lift in the hands of proven execs. Jerald L. Kent, former CEO of Paul Allen's majority-controlled cable operator Charter Communications Inc. (CHTR), has raised about $600 million from private equity funds such as Charterhouse Group and Oaktree Capital Management to help his own Cequel III investment fund buy small cable systems and cell-phone towers. "Five years back, there were maybe one or two funds that had $1 billion to spend," says Kent. "Now there are 50 or 60 of them, and some have $5 billion."

A prototype for this new media game is the deal devised by Edgar M. Bronfman Jr., the oft-derided liquor scion who lost part of his family fortune on Seagram's (V) media plays in Hollywood and the music industry. In late 2003, Bronfman lined up investors Providence Equity, Thomas H. Lee Partners, and Bain Capital to back his $2.6 billion purchase of Warner Music Group (TWX). Bronfman slashed overhead by laying off 1,600 workers and cut nearly one-third of Warner's acts to help generate net earnings of $36 million in the fourth quarter, vs. a $1.1 billion loss the previous year. More important for Bronfman and the other investors, they paid themselves $350 million in cash from operations in October, and in December used $700 million in new debt to essentially recoup nearly all of the $1 billion they put up less than a year before. And they'll have the potential to pull down a bundle if the initial public offering, announced on Mar. 11, is greeted warmly on the Street. Bronfman was not available for comment.

AWASH IN CASH

Possible new targets include Universal Music Group, the music unit of Paris-based Vivendi Universal (V), which last year sold its Universal studio, cable channels, and theme parks to General Electric Co.'s (GE) NBC unit. And as part of efforts to trim down, Viacom has said it will sell some radio stations, its five theme parks, the Famous Players theater chain in Canada, and possibly publisher Simon & Schuster.

With so much money in the market, deals are bound to get more expensive. A dozen bidders are interested in Paramount's theme parks, including former AOL Time Warner and Six Flags Theme Parks executive Pittman and Thomas McGrath, an erstwhile Paramount COO. Prices are already rising in some sectors. Theme parks and theater chains trading as high as seven times cash flow a year ago are now getting nine to 10 times, figures McGrath. Undeterred, McGrath has allied with Goldman Sachs & Co. (GS) and Spectrum Equity Partners to bid nearly $1 billion for the theme parks.

But are execs from the old media empires nimble enough for today's ever-changing world? "The big challenge for executives used to protecting the crown jewels is whether they can take on a disposition as investors," says Dennis A. Miller, a partner with Bear Stearns Asset Management Inc.'s (BSC) Constellation Ventures, which invests in media startups. "If you don't think entrepreneurially, you won't succeed." And what will be the measure of that success? To sell back to a larger media player, of course.

By Ronald Grover in Los Angeles and Tom Lowry in New York


Steve Ballmer, Power Forward
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