Smaller Media Deals Likely

As Wall Street sees it, the message behind Comcast Corp.’s decision to pull the plug on its $49-billion offer for Walt Disney Co. is clear: Deal making isn’t dead, just different.

On Wednesday, investors and analysts described the collapse of Comcast’s bid as marking a likely close to the era of media mega-mergers -- and the beginning of a time of much simpler consolidation.

“This is really an endgame,� Harold Vogel with New York-based Vogel Ventures/Atriem Partners said of Comcast’s pullback.

In the view of Vogel and others, Comcast shareholders -- who never warmed to the proposed Disney deal -- signaled deep skepticism about the “synergies� that were supposed to wring value out of a combination with the Burbank-based entertainment conglomerate.

It would have taken so much money to land Disney, Comcast executives “would have had an investor revolt on their hands,� said Viacom Inc. Chairman Sumner Redstone.

Having gotten that message, the Philadelphia-based cable giant and its acquisition-hungry peers are already beginning to concentrate on a wave of smaller, more tightly focused deals meant to fill corporate gaps and strengthen existing businesses.

In a Wednesday morning conference call, Comcast Chief Executive Brian Roberts told analysts the company would begin examining new potential acquisitions, among them troubled Adelphia Communications Corp. and its cable systems.

“I suspect we’ll look at those,� Roberts said. “They have a number of systems that fit our footprint.�

Adelphia, in bankruptcy proceedings while its founder stands trial on charges of securities fraud, said last week that it would consider a sale of the company.

Other cable rivals, including Time Warner Inc., could also make a play for Adelphia.

Asked about Time Warner’s acquisition strategy, CEO Richard Parsons told analysts Wednesday: “We don’t have anything that we can bring to you now.� But Parsons said the company’s recent efforts to bolster its financial health means “we can open our eyes a little wider.�

The hunger for more targeted deals is being fueled, in part, by an improving economy and the ready availability of investment funds.

“For smaller, focused deals, there is a lot of capital available in the marketplace,� said Joel Reed, principal at Relational Advisors, a boutique investment bank in San Diego.

In the broadcast sector, meanwhile, a Philadelphia court’s review of federal media-ownership rules may soon end a period of uncertainty that has slowed merger activity to date. But these, too, will probably be relatively modest transactions -- individual TV stations or small groups of stations changing hands.

“Whatever happens in Philadelphia will drive some deals,� said Blair Levin, an analyst with Legg Mason.

On another front, satellite TV company EchoStar Communications Corp. could be an attractive acquisition target for the likes of Disney or telephone company SBC Communications Inc., some analysts believe. But even a company such as EchoStar would probably fetch less than half of what Comcast offered for Disney.

Then there’s the possible marriage between Sony Corp. and Hollywood studio Metro-Goldwyn-Mayer Inc. Sony, in potential alliance with private equity firms Providence Equity Partners and Texas Pacific Group, has expressed interest in acquiring MGM’s film library for about $5 billion.

“The desire to do deals is coming back, but it’s much more nuanced and careful acquisitions that are being considered,� said Tom Wolzien, a media industry analyst with Sanford C. Bernstein in New York.

According to Wolzien and others, the Comcast bid’s failure and the still-fresh memory of disastrous results from the merger of AOL with Time Warner and Vivendi with Universal Studios militate against another round of blockbuster combinations anytime soon.

“We’ve all been seriously burned over the past decade by the use of the word ‘synergy,’ � Wolzien said. “And you know, when it came down to it, these companies just couldn’t execute.�

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Still attractive

In an era of more tightly focused media mergers, here are three potential acquisition targets frequently mentioned on Wall Street:

* Metro-Goldwyn-Mayer Inc.

The Hollywood studio, with more than 4,000 films in its library, could easily be digested by a much larger conglomerate, such as Sony Corp. and Time Warner Inc.

* Adelphia Communications Corp. The troubled cable company could be matched up with the cable holdings of Comcast Corp. or Time Warner.

* EchoStar Communications Corp. The satellite TV company could be ripe for a takeover by Walt Disney Co. or SBC Communications Inc.

Source: Times research

Times staff writers Walter Hamilton, James Bates and Meg James contributed to this report.