TheChek News Flow

Despite touted ‘synergies’, there is little obvious overlap from which to cut costs

US pipeline companies are the bass players in oil industry rock bands: steady plodders for the most part rather than starry shredders such as ExxonMobil and Chevron. Now scarcity has thrown a spotlight on their value, intensified by Oneok’s recommended offer for Magellan Midstream Partners at an enterprise value of $18.8bn.

Regulatory barriers and legal challenges to new pipelines make existing ones attractive acquisition targets. By purchasing Magellan for cash and stock, Oneok would become one of the largest oil and natural gas pipeline operators in the US.

The success of the deal hinges on bullish assumptions and tax benefits. Oneok’s offer — made up of about $8.8bn in equity and $5bn in cash — represents a 25 per cent premium over Magellan’s three-month average unit price. “Synergies”, which are not clearly broken down into savings and marketing benefits, could be as much as $400mn a year, Oneok says. That would be worth about $3.2bn taxed and capitalised, covering the premium that Oneok is paying.

There is little obvious overlap from which to cut costs. Oneok transports natural gas and its byproducts. Magellan moves crude oil and its derivatives. Oneok cannot use Magellan’s oil pipelines to tap new markets for its natural gas and vice versa.

This suggests efficiencies would mostly come from office and staff overheads. The two companies had about $800mn in combined general and administrative costs. Even if you cut that down by 25 per cent, it would only yield $200mn of cost savings.

However, Oneok will get a valuable tax benefit from the transaction, which it values at about $3bn.

Like Oneok, Magellan’s business is largely fee-based. Pipeline usage fees are based on volume and tend to be locked in fixed contracts. This insulates operators from volatile hydrocarbon prices, reducing their risks.

Combined net debts would be about four times trailing ebitda, according to S&P Capital IQ data. That is hardly excessive. But an 8 per cent drop in Oneok’s share price on Monday points to justifiable nerves among shareholders.

Soros fund, Fortress among lender group that bid roughly $225 million for former digital media darling

Vice Media said it has received a rescue offer and filed for bankruptcy protection, a dramatic turn for a digital news darling once promised to upend mainstream media.

The bankruptcy filing marks the latest downfall of media upstarts that years ago commanded sky-high valuations, only to struggle to compete with the likes of Meta Platforms’ Facebook and Alphabet’s Google for ad dollars. Last month, BuzzFeed BZFD -1.78%decrease; red down pointing triangle said it was closing BuzzFeed News after it continued to lose money.

In its heyday, the hip, irreverent media company co-founded by Shane Smith attracted a bevy of investors, including 21st Century Fox and private-equity firms. In 2017, it secured a $450 million investment from TPG, leading to a $5.7 billion valuation that made Vice the most valuable new media company in the U.S.

But the company, which owns a production studio, creative agency and digital publisher Refinery29, struggled to mature into a major media force and didn’t manage to live up to its valuation. It started looking for a buyer willing to pay just a fraction of its earlier valuation, and struggled to cover basic costs, falling behind on bills from its vendors. It recently cut staff and shut down its Vice News Tonight broadcast.

On Monday, the company said a group of its creditors, including Soros Fund Management, Fortress Investment Group and Monroe Capital MRCC 0.19%increase; green up pointing triangle, had agreed to buy Vice for about $225 million and take on significant liabilities. The agreement is subject to higher bids from other parties, it said.

Vice, which filed for chapter 11 protection in the U.S. Bankruptcy Court for the Southern District of New York, said its media brands would continue to produce content. “This accelerated court-supervised sale process will strengthen the company and position Vice for long-term growth,” Bruce Dixon and Hozefa Lokhandwala, Vice’s co-chief executives, said in a statement.

The company said it had received funding from the bidders to maintain operations. Vice said it expects the financing and cash generated from ongoing operations to fund its business during the sale process, which it anticipates to close in the next two to three months.

Vice gained popularity through its ability to capture the zeitgeist of the moment, said Michael Kassan, CEO of media consulting firm MediaLink, which has advised Vice and some of its investors over the years. Eventually, he said, Vice lost ground to digital platforms such as YouTube, TikTok and Meta.

“That thing that was the attraction to Vice, you can find that in a lot of other places now,” he said.

Vice was started in the mid-90s as a Montreal-based punk magazine, and ultimately set up shop in hipster Brooklyn. The company built a popular digital video and TV operation, targeting young consumers with its edgy content and gonzo-style reporting that often went viral. It was also known for stunts, such as sending Dennis Rodman to North Korea to meet the country’s leader Kim Jong Un.

About a decade ago, Vice became part of an elite circle of digital media companies that challenged established publishers. Mr. Smith, who ran the company as CEO for many years, more than once lobbed threats aimed at larger competitors, saying Vice would “eat their lunch” and was the only media company that truly understood millennials. At the time, Mr. Smith told the U.K.’s Observer newspaper he wanted to be the next CNN and ESPN.

Today, Vice touts shows like “Weediquette,” exploring marijuana culture, and “Most Expensivist,” a show about how the rich spend their money hosted by Rapper 2 Chainz.

Vice’s business has faced challenges for years. The company missed its 2017 revenue goal of $805 million by more than $100 million, The Wall Street Journal reported at the time. When Vice fell short of its revenue goals, investors, including private-equity firms TPG and TCV, Walt Disney Co., Hearst and 21st Century Fox, began more aggressively pushing for the company to turn a profit.

Vice’s digital business, once the main draw for eye-popping, eight-figure advertising deals, found it harder to pitch itself in that central role as traffic has dropped.

U.S. digital traffic in March—20 million monthly unique visitors—was half of what it was in March 2019, according to digital media-measurement company Comscore.

“The stickiness of the eyeballs wasn’t as strong as we thought, and audiences move on,” said Mr. Kassan.

Among the other digital companies that promised to disrupt the traditional publishing industry in the early aughts are BuzzFeed, which went public through a special-purpose acquisition company a year and half ago, and last month said it would end its news operation. Its stock has lost more than 90% of its value since the company went public.

Mashable, another digital-media darling, sold to Ziff Davis in 2017 for about $50 million, or just one-fifth of the company’s $250 million valuation at the time.

Canadian owner has not grown the estate at rate originally envisaged but has still made money

Every holiday has a return date. That time approaches for Brookfield, owner of Center Parcs. The Canadian alternative assets group plans to sell the UK holiday resorts business for a mooted price of more than £4bn. Not all of Brookfield’s holiday snaps will bring back happy memories, especially of empty rooms during Covid-19. But it should still earn a healthy return.

Center Parcs specialises in activity holidays for better-off families. It operates five “villages” in the UK and one in Ireland. It has few rivals at its price point — about £250 per person daily. This represents a rebound to pre-Covid levels.

Families typically take Center Parc breaks on top of annual foreign holidays. It is a steady, cash-generative business. However, the company has lately invested in expanding its sites. As a result, Center Parcs’ free cash flow was £117mn for the nine months through to December, down a fifth year on year.

Brookfield has not grown the Center Parcs estate at the rate originally envisaged. Environmental objections killed off a proposal for a new park in West Sussex, south of London. It still plans to add a sixth UK site, though, and to increase its Irish lodges by 40 per cent to 700.

Blackstone took Center Parcs private for £205mn in 2006. It sold it to Brookfield for £2.4bn in 2015.

What would Brookfield make on this latest sale? Center Parcs’ UK properties were independently valued at £4.1bn in April, so a deal at £4.5bn seems possible. That would equate to an unlevered annualised return of more than 8 per cent. Assuming about 60 per cent debt was used in the original purchase price, that would imply a return of almost four times, or 18 per cent annualised, after interest costs.

Center Parcs has provided a decent payday for its last two owners. The test for a new owner would be to expand faster without diluting the offer — or returns made from it.

EU clears Microsoft-Activision deal despite UK’s decision to block acquisition

Competition officials in Brussels take different view from UK regulator on cloud gaming market

EU regulators have cleared Microsoft’s $75bn acquisition of Activision Blizzard, breaking from the UK and US which are holding up the gaming industry’s biggest-ever deal.

Margrethe Vestager, the EU’s competition chief, said on Monday that Microsoft had made a series of concessions to alleviate its concerns, including allowing all European consumers who purchase an existing or future Activision game to stream it on all cloud game streaming providers for 10 years.

Officials in Brussels took a sharply different view on the cloud gaming market to their peers in the UK, where the Competition and Markets Authority had deemed Microsoft’s concessions insufficient to address fears that the deal would cement its dominance of the nascent industry.

“Even if Microsoft did decide to withdraw Activision’s games from the PlayStation, this would not significantly harm competition in the consoles market,” the EU said in a statement, despite that issue being the focus of US regulators’ concerns.

Vestager added she was comfortable with arriving at a different conclusion to the US Federal Trade Commission and the CMA, which has argued that Microsoft might make Activision’s games exclusive to its own cloud gaming service.

“I think it’s really important that we own this decision,” said Vestager. “We think this is a good remedy and we think it’s pro-competitive.”

The EU’s decision to clear the transaction removes an important hurdle for Microsoft and Activision, which have said they remain committed to a transaction that would create the third-biggest gaming company by revenue, behind China’s Tencent and Japan’s Sony.

However, it remains unclear how the companies will be able to overcome the objections of UK and US regulators.

In the UK, Microsoft and Activision are appealing the CMA’s decision, but can only do so on procedural grounds. UK regulators have sought significant remedies, such as forcing the sale of the Call of Duty franchise, a move that the companies believe would render the deal unworkable.

“All options are on the table,” said a person with direct knowledge of Microsoft’s thinking. Microsoft did not immediately reply to requests for comment.

The EU decision comes despite opposition from other groups, mainly Japan’s Sony, who accused Microsoft of misleading regulators of its promises to give access to Call of Duty to other platforms. The EU did agree with UK authorities that the dominance of Sony’s PlayStation removed any competition concerns from the deal in the console market.

Microsoft has already struck licensing deals with cloud games platforms including Nvidia’s GeForce Now and has committed to extending the same rights to any future companies that launch a rival service over the next decade.

No games made by Activision Blizzard are available on cloud platforms, so the European Commission hopes that the proposal will boost competition in what one official called a “very limited” but “growing” and “innovative” part of the market.

The move comes as antitrust authorities around the world provide tougher scrutiny of Big Tech deals. “Regulators want to send the signal that the tech party is over,” said a regulator in reference to the UK blocking the deal earlier.

Vestager said the main focus of its investigation was on the impact of the deal in cloud gaming, after dismissing concerns about potential harms to the console market. The EU determined that it would be too detrimental to Activision’s profits for Microsoft to pull Call of Duty from PlayStation consoles, which outsell Xbox four to one in the European market.

One EU official suggested that the CMA had “overstated” Microsoft’s share of the cloud game streaming market, suggesting that the 60 to 70 per cent estimate stated by the UK regulator in its final ruling included many subscribers to Microsoft’s Game Pass subscription service who do not actually use the cloud gaming features of the product.

“For us, it’s not a separate market, it’s a segment of the overall [video games] market,” the official said.

To proceed with the deal, Microsoft and Activision Blizzard must now defeat US and UK regulators in the courts. In the UK, both companies have hired top barristers to argue their case at the Competition Appeal Tribunal, which will determine whether the CMA’s decision was lawful by analysing the agency’s decision-making procedures.

In the US case, the FTC’s arguments remain focused on consoles, despite both the UK and now EU determining that the risk to Sony from the deal is limited given the PlayStation’s dominant market share

Buyout group will pay $970mn in cash but predominantly use stock to complete the acquisition

TPG has agreed to buy debt and real estate manager Angelo Gordon for $2.7bn as the US private equity group diversifies into credit based investments with its first major acquisition since going public last year.

The acquisition of New York-based Angelo Gordon, one of the largest investors in private credit markets and a savvy distressed debt player, will be predominantly made in stock.

TPG said it will pay $970mn in cash and the remainder in stock by issuing 62.5mn new shares in a deal it forecast would increase its fee-based earnings by nearly 10 per cent next year. In first-quarter results released on Monday, TPG generated $99mn in fee-related earnings, generally beating analyst forecasts.

TPG listed its shares last year as part of a growth push by the $137bn in assets group that many expected would help it acquire a credit-based investment manager, broadening its portfolio that is mostly focused on growth oriented corporate buyouts and its “Rise” platforms focused on sustainability and climate-based investments.

Angelo Gordon, which manages $73bn in assets with 650 employees worldwide, has had important roles in steering recent bankruptcies like Revlon and Envision Healthcare. It also has extensive operations financing real estate.

TPG, which went public in January 2022 at a $9bn valuation, slightly higher than its current market capitalisation, hopes to use its bigger size to appeal to the large pools of capital that increasingly prefer to deal with a limited number of investment managers.

TPG’s chief executive Jon Winkelried said on Monday that the acquisition “underscores our continued focus on growing and scaling through diversification, while driving long-term value for our shareholders”.

Josh Baumgarten, co-chief executive of Angelo Gordon, said the merger would add “scale” to its investment operations during a time of strong opportunities in credit and real estate markets.

The transactions come as private credit managers increasingly replace traditional banks in financing buyouts and even in making large real estate and corporate loans. The deal adds to a wave of consolidation in private capital as asset managers look to bolster their credit investment capabilities.

Several large debt firms have been acquired in recent months and another prominent player in the sector, Fortress Investment Group, is expected to be acquired by Mubadala, the Abu Dhabi-based sovereign wealth fund, the Financial Times reported last week.

TPG previously had a partnership with the credit specialist Sixth Street Partners, which the sides terminated in 2020.