Published On: Fri, May 16th, 2014

Leon Black’s Apollo Global Management Forming Television Production Company Joint Venture With Rupert Murdoch’s 21st Century Fox

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Yesterday, Rupert Murdoch’s 21st Century Fox announced it has entered into a preliminary agreement with Leon Black’s private equity firm Apollo Global Management. Subject to a number of conditions, the agreement calls for 21st Century Fox and certain affiliates of Apollo Global Management to form a joint venture for the two groups’ television production assets.

If a deal indeed now proceeds to a closing, it is intended that 21st Century will contribute its existing subsidiary Shine Group to the joint venture, and investment funds managed by Apollo Global Management will also contribute two media production businesses they control, Endemol and the Core Media Group.

It is also stated that 21st Century Fox and Apollo Global will jointly own and manage such a new joint venture, tough few details are provided.

As there are still many significant items to be finalised, the 21st Century announcement stresses that there is no assurance the proposed transaction will actually be completed. The need to issue an announcement likely comes from the fact that 21st Century is a Nasdaq listed company, and the conversations over a deal have clearly gone beyond just issues of principle to already an at least tentative meeting of minds, culminating in a preliminary agreement, hence now requiring public disclosure.

The Shine Group is a UK television production company that makes the hit programme “Master Chef”, and it was founded by Murdoch’s daughter Elisabeth. Her company was later bought out by News Corp in 2011, which paid US$460 million for the equity, after it had become extremely well-established.

Elisabeth Murdoch, who had owned 53% of Shine then re-established her own links with Murdoch’s company, which have not always been entirely without controversy, and joined its board of Directors. Elisabeth is married to Matthew Freud, who is a great grandson of Sigmund Freud.

Also, just to remind you that when Murdoch split his empire in two last year all the News Corp assets other than its newspapers were placed into the new umbrella holding, called 21st Century Fox.

The Netherlands based Endemol had made its name as the maker of the show “Big Brother”, and was founded originally by Dutch television producer John De Mol who later sold his original interest. Endemol was later acquired in another of the big LBO transactions at the height of the last boom, and just before the recession hit, for the huge sum of about US$4.5 billion in 2007. That deal entailed buying in 25% of the shares which were held by the public and a 75% balance that was still held privately.

The buyers were a consortium that included Goldman Sachs, Silvio Belusconi’s Mediaset and, as well, a private equity firm Cyrte in which original founder John De Mol himself is also believed to have had a significant interest.

Then post-recession Endemol finally sank irretrievably beneath an ocean of debt that was associated with the LBO, and the company’s equity was eventually picked up in 20212 by Apollo Global Management who were the majority, and presumably secured, lender and who converted the debt into equity to salvage what they could from the mess.

Core Media Group is an American company, based in New York, which holds the rights to the show “American Idol”, and also to the show “So You Think You Can Dance”. Apollo Global acquired Core Media Group in June 2011.

All three companies, Shine, Endmol and Core Media are strong in what is termed “unscripted” programming – an area where for the most part at least you don’t have to pay huge sums to famous actors, or face programming costs for product that requires extensive filming and re-filming of rehearsals, and therefore ought to offer lower costs to begin with.

The rationale for this new joint venture is nevertheless to create a leading position in what is rapidly becoming a consolidating industry. Just last week two other big media deals in the production space were announced. First, Discovery Communications and Liberty Global agreed to acquire the UK based production group All3Media for US$930m. Then the UK broadcast network ITV also reached its own deal to acquire an eighty percent interest in Leftfield Entertainment Group, an American reality television company for US$360 million.

In part there will still be an expectation for the new joint venture to reduce costs, even in the area of unscripted programming. More importantly, perhaps, the need to bulk up may come from the consolidation that also going on on the cable side of the industry – as the big players are consolidating there too their buying power increases proportionately. One of the reasons some voices worry about the pending Comcast TimeWarner cable merger for example relates precisely to potential such monopsonist buying power that their proposed merged entity will have.

So if you can’t beat them, do the same! With this new joint venture the combined entity will certainly have more clout than the three enjoy on their own. As to who will manage the joint venture, despite the vague wording of yesterday’s announcement one might reasonably conclude that Elisabeth Murdoch’s handwriting may be in some the details that finally emerge.

 

 

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