TheChek News Flow

League is advancing toward lucrative deals with incumbent partners and is in talks with tech giants as well as NBCUniversal

The National Basketball Association is advancing toward a series of major media deals, with Amazon AMZN -2.11%decrease; red down pointing triangle and Google’s YouTube vying for a new streaming package and NBCUniversal trying to grab one of the main TV deals held by Disney’s DIS -1.27%decrease; red down pointing triangle ESPN and Warner Bros. Discovery’s WBD -2.73%decrease; red down pointing triangle TNT.

Interest is high in the league’s next round of packages, which kick in after the 2024-2025 season. Disney, which pays around $1.6 billion a year for TV rights, and Warner, which pays about $1.2 billion a year, are in discussions to pay substantial increases under a new pact, while airing fewer games than they do now, say people familiar with the conversations.

The robust pricing expected in the deals shows how valuable live sports are to traditional media companies at a time when cord-cutting is shrinking overall TV viewership. Many households maintain cable subscriptions because it is the only way to watch their favorite teams’ games.

Media-rights talks have been happening against the backdrop of the NBA playoffs. Warner Chief David Zaslav sat courtside Monday to watch the New York Knicks prevail in the final seconds against the Philadelphia 76ers, a game that aired on TNT. An exclusive negotiating window for Disney and Warner to renew their deals expired at midnight the same night, clearing the way for the league to have formal negotiations with other suitors as well.

Under their current deals, Disney and Warner carry roughly 165 games combined. Games taken from those incumbents would help the NBA create a new package for a streaming player with nationally televised regular-season games and some playoff contests. The league also could draw on a catalog of locally aired games.

Amazon’s Prime Video, which airs NFL games, has been aggressive in pursuing the streaming package and is viewed by league and media executives as the front-runner. YouTube is also in the mix, those executives say. The streaming package would give a tech giant the right to show games in markets around the world.

Among traditional media companies, NBCUniversal is jostling with Disney and Warner for a package. It is angling for regular-season and playoff games to show on NBC and its Peacock streaming service, as well as rights for NBC to share the NBA Finals with Disney’s ABC, according to some people familiar with the discussions.

Warner Discovery and Disney also have the right to match other offers, people with knowledge of the pacts said. The new deals could include language and terms that would potentially make enforcing a matching right clause challenging.

The NBA discussions are fluid; negotiations with a streamer like Amazon could impact the way final deals are structured with TV partners, for example. Wrapping up and announcing all the deals could take several weeks.

In negotiating new long-term pacts, NBA Commissioner Adam Silver has said the league wants to significantly increase the scale of its rights deals and broaden the ways fans can watch games around the world. It is a strategy the NFL has also pursued, increasing rights fees from its incumbent media partners and crafting new agreements such as its deal with Amazon for “Thursday Night Football.”

Amazon, YouTube and NBCUniversal have invested in sports to boost their respective streaming services.

Retaining NBA rights is a high priority for both Disney and Warner. The league’s content helps them charge high fees to pay-TV distributors like Comcast and Spectrum to carry networks such as ESPN, ABC and TNT.

“What is the alternative programming you would replace those prime-time hours with,” said David Levy, a former Turner president who is now co-chief executive of the advisory firm Horizon Sports & Experiences.

Most scripted shows fail and the cost to market them isn’t cheap, he added. With sports, there is a “built-in fan base and you know pretty closely how the games are going to rate,” he said.

Securing the rights could help Disney and Warner with their respective streaming initiatives. ESPN is launching its own direct-to-consumer version of its popular cable channel and will want NBA games to help drive subscriptions.

Warner and Disney are joining with Fox Corp.on a new sports-centric streaming service set to launch in the late summer or early fall. Having a big chunk of NBA regular and postseason action is expected to be a major selling point for the as-yet unnamed platform.

Some on Wall Street have expressed concerns about media giants’ “sports at any cost” approach. Wolfe Research analyst Peter Supino downgraded Warner Discovery stock to underperform this week, citing the likely cost of a new NBA deal as a factor.

Any deal would need South African government’s approval while cost savings are another issue

BHP has turned its pickaxe to the equity markets to find the metal it desires: copper.

Anglo American, one of the few miners to build a copper mine in recent years, offers growth in the red metal, buried amid its South African iron ore and platinum assets. BHP’s complex all-share approach worth £25.08 per Anglo share values Anglo’s equity at £31.1bn. That price isn’t enough to extract a deal.

There are other obstacles to this tie-up. The deal will require not just Anglo shareholder approval but that of South Africa’s government. Competition law there has a public interest clause that could slow or block any deal approval.

Anglo American’s South Africa exposures, with about a fifth of its assets there, explain much of its persistent enterprise valuation discount to peers. Its 5 times multiple of forward ebitda, before BHP’s approach, was about 15 per cent below BHP and Glencore, and 40 per cent under US-listed Freeport-McMoRan.

BHP, which has always gone out of its way to avoid emerging market risk, will pitch this as an opportunity for South Africa. Anglo holds a substantial stake in its Johannesburg-listed subsidiaries in the country: its dividends from those businesses, Anglo American Platinum (Amplats) and Kumba Iron Ore, are largely invested outside the country.

BHP proposes handing to Anglo’s shareholders the miner’s stakes in Amplats and Kumba. Some of that cash flow could stay in South Africa, runs the argument, creating jobs there. That logic is debatable. Local shareholders still require dividends. And Anglo investors who want direct exposure presumably already own what they need.

Combining the shares in Amplats and Kumba with a slug of BHP stock means a price about 32 per cent above Anglo’s average share price over three months.

That doesn’t look enough. Anglo’s shares have been slowly recovering after a warning about production late last year. At £25.08 a share, the deal is pitched only 19 per cent above where Anglo was trading earlier this week. That headline price and premium are already down slightly, thanks to Amplats and Kumba shares falling on Thursday.

Cost savings could be another issue. Besides getting copper tonnes on the cheap, it is not clear what the benefits would be to BHP. The two companies could perhaps share infrastructure for their metallurgical coal mines in Queensland Australia. Both have iron pellet businesses in Brazil. Cost savings from copper look unlikely, except perhaps from marketing 40 per cent more copper production.

The combined group would get 46 per cent of forward ebitda from iron ore and 44 per cent from copper, points out Jefferies. To up the price, BHP would need to find some savings there. The miner will need to dig deeper to get this project over the line.

Carlos Tavares says Britain’s quota regime could bankrupt carmakers

Britain’s electric vehicle policy is “terrible” and threatens to bankrupt carmakers, the head of Vauxhall owner Stellantis warned on Thursday.

Carlos Tavares said the UK’s quota regime, which requires manufacturers to meet EV sales targets that rise annually, was set at “double the natural demand of the market” and would mean carmakers would have to sell vehicles at a loss to avoid fines.

“To survive, companies have to stay in the black,” he said. “I will not sell cars at a loss.”

He had urged UK transport secretary Mark Harper on Wednesday to make the targets easier to hit by allowing carmakers to count electric van sales and EV exports towards the targets, he told reporters.

Unlike bringing back consumer incentives, which the government has scrapped, this measure would not cost the taxpayer anything, he said.

The UK could use its post-Brexit autonomy to make a quick decision and make the changes to the regime “overnight”, he added.

The UK has a China-style quota scheme that is intended to shift the market away from petrol and diesel cars and towards battery models by 2035. EV car sales targets rise annually from 22 per cent this year, to 28 per cent next year, and reach 80 per cent by 2030.

EVs accounted for 15.5 per cent of car sales in the first three months of the year, according to official figures. For vans, which have separate quotas, this year’s target is 10 per cent.

About 13 per cent of Stellantis car sales, which include the Peugeot, Citroën, Fiat and Jeep brands, in the UK are electric, while 8.6 per cent of its vans are battery models.

“The settlement as it is crafted today is a terrible thing for the UK,” Tavares said. “I think that the fact that they impose a ramp-up of [EV sales] makes sense. The problem is the magnitude.”

He added: “The consequence of this is that everybody will start pushing the BEV, pushing the metal into the market, which then totally destroys profitability, which then destroys the companies.” 

The mandate was under consultation with the industry for more than 12 months before it came into force this year. During its drafting, several carmakers won key concessions, including being allowed to use significant reductions in overall CO₂ emissions to offset poor EV-only sales. 

The concession is particularly beneficial to Toyota, which has two UK plants, as well as Ford, which also has significant UK operations.

Stellantis makes electric vans at Ellesmere Port for export, and some at its Luton plant as well. It is in talks with ministers about financial support to transform the Luton plant into an all-electric factory.

Tavares said that EVs are “better” cars, but that consumers are still put off by their higher prices and concerns over charging.

The government did not immediately respond to a request for comment.

Legal & General and Abrdn also criticise offer as undervaluing UK-listed miner

South Africa’s minerals resources minister voiced his opposition to BHP’s £31bn proposal to take over Anglo American, fuelling doubts over a deal that would combine two global mining companies.

Gwede Mantashe told the Financial Times he was not in favour of the bid because South Africa’s previous experience with BHP was “not positive”, though he cautioned he was not expressing an official government position.

BHP in 2001 merged with South African miner Billiton, creating one of the largest mining groups at the time. Mantashe, a close ally of President Cyril Ramaphosa, said that the transaction that led to the formation of BHP Billiton “never did much for South Africa” and led to capital leaving the country.

“What we saw is that it dumped coal and then created a small company called South32, which is now marginal.”

PIC, a South African state-owned entity that is Anglo’s biggest shareholder, declined to comment on the offer price, saying “any transaction presented will be assessed to ensure value creation for our clients”.

“The mining sector remains a critical part of the South African economy, impacting a wide variety of stakeholders, therefore, new opportunities that may arise in the sector need to take these factors and long-term sustainability into account,” PIC said.

Earlier on Thursday Anglo’s largest shareholders criticised BHP’s proposal to take over its London-listed rival as an “opportunistic” bid that substantially undervalued the company.

The move by the world’s biggest mining group came after Anglo had suffered its worst one-day share price drop in 15 years in December preceded by a period of its stock underperforming its peers.

Nick Stansbury, head of climate solutions at Legal & General Investment Management, Anglo’s 11th-largest shareholder, said BHP had made a “highly opportunistic approach” that was capitalised on Anglo’s “depressed” valuation and represented “an unattractive proposition for long-term investors”.

“The offer price has the feel of an initial bid which you hope would be revised higher,” said Iain Pyle, a fund manager at Abrdn, a top-25 shareholder in Anglo. “It feels opportunistic.”

A third investor, who is a top-20 shareholder in Anglo, said the bid price was “way off”. He added: “If I was a BHP shareholder and I was still capable of doing a cartwheel I’d do two if I got it at this price.”

BHP’s takeover offer for Anglo would bring together two global mining companies and rank as one of the industry’s largest transactions in years. The Australian group said on Thursday that it had offered 0.7097 BHP shares for each Anglo share, as it sought to expand its portfolio of copper mines, a mineral for the decarbonisation of the global economy.

BHP said its offer valued each Anglo share at £25.08. Anglo shares surged 13.5 per cent to £24.9 in London, giving the company a market capitalisation of £33.2bn.