How the Coronavirus Crisis Is Complicating European M&A Deals

By Elsa Keslassy

LOS ANGELES (Variety.com) – With the stocks of myriad global companies plummeting in the face of the coronavirus crisis, some M&A deals in Europe have been placed on hold or terminated, while others are further complicated, such as production-distribution powerhouse Banijay Group’s hefty $2.2 billion deal for Endemol Shine, the producer of “Peaky Blinders” and “Black Mirror.”

Banijay Group, the Paris-based company behind historical drama “Versailles” and “Keeping Up With the Kardashians,” announced the acquisition in October, after more than a year of on-and-off courtship, with the ambition to form a merged entity that would be the largest non-U.S. production player in the market. Banijay completed its refinancing drive to raise $2.7 billion for the deal in early February, just when COVID-19 began spreading outside China.

While the agreement is being reviewed by regulators, two financial sources tell Variety that Banijay Group boss Stéphane Courbit has looked for a way out of the deal, though they add that it’s too late for the company to retract. Buyers can terminate deals either by activating a Material Adverse Change clause, if included in a contract, and arguing that a significant variance has impacted the economic rationale of a deal; or by claiming that a force majeure — an unpredictable, unpreventable event — has made it impossible for the deal to go ahead.

However, one senior financier says that in the case of Banijay’s acquisition of Endemol Shine, it’s too late to apply either strategy. “Coronavirus was already known when the deal was signed,” the financier explains. Another senior financial adviser says that Banijay would probably face a “multibillion-dollar lawsuit” from Endemol Shine’s joint owners, Disney and Apollo Global Management, if it canceled the deal.

The combined company’s path to success was never easy, says an investor. “It was already a pretty difficult operation in a stable market, considering Endemol Shine’s debt load [$1.83 billion as of February], but with this pandemic, it’s going to be even more challenging for Banijay to make this deal profitable.” While any acquisition of a production group is problematic right now, Banijay’s purchase of Endemol Shine involves extensive duplication of assets. “This is a merger that [will] require mass restructuring after it’s complete, and in this climate, [that’s] not ideal,” says Tim Westcott, a senior analyst at Omdia.

The deal was expected to receive antitrust approval this summer but could now be delayed. It has been approved by the U.S. antitrust board and is being reviewed by the European Commission, which recently asked companies to delay merger announcements until further notice “due to the complexities and disruptions caused by the coronavirus.”

For now, both Banijay and Endemol Shine are “continuing to work as rival companies to avoid getting a big fine for jumping the gun,” says one Endemol Shine executive.

Elsewhere, Lagardère Studios (Damien Chazelle’s Netflix series “The Eddy”), a vast French TV producer-distributor comprising 27 companies, is still on the market and struggling to find a buyer. The company was in negotiations with Fabrice Larue, former owner of Newen, which is now the property of TF1 Group, but talks stalled over pricing. Lagardère reportedly wants $216 million, though one French financial analyst estimates its only truly valuable asset is Spanish banner Boomerang, which owns rights to a number of popular U.S. animated TV shows.

Other deals on hold include Nordic Entertainment Group’s sale of its entire non-scripted production, branded entertainment and events businesses within production arm NENT Studios. NENT Group — which in January revealed surprise plans to offload the 12 companies — has hit pause for the foreseeable future on the sale, for which it had assigned investment banks About Corporate Finance and Stella EOC.

However, Ingrid Silver, a partner at London-based media law firm Reed Smith, notes there’s still room for opportunism, and firms with deep financial reserves “could do some incredible bargain hunting” in the current climate.

Indeed, COVID-19 uncertainty may have propelled Italian commercial broadcaster Mediaset — controlled by the family of Italy’s controversial former prime minister Silvio Berlusconi — to raise its stake from 15% to 20.1% in beleaguered German rival ProSiebenSat.1, whose share price has taken a hit in recent months and hovers just above $7.50, down from more than $15 a year ago.

This week, Mediaset sought clearance with the German competition regulator for its heightened presence in ProSiebenSat.1 — a move that, if granted, could allow the broadcaster to further increase its stake to 25%.

Some suggest the coronavirus has also served as a scapegoat for troubled deals, such as ProSiebenSat.1’s planned sale of Red Arrow Studios, producer of reality dating show “Love Is Blind.” After struggling to get a bidding process underway due to disagreements around Red Arrow’s valuation — estimated at around $278 million — “Fleabag” producer-distributor All3Media emerged as the sole contender and was expected to swoop in sometime in March.

However, ProSiebenSat.1 revealed March 13 that it had decided to keep Red Arrow for the long term, explaining that a deal is “no longer viable in a coronavirus crisis environment” — an outcome that has raised eyebrows among some close to the negotiations.

“If you have a choice right now between cash and being left with production companies that are dead in the water for the next few months, what would you do?” scoffs one senior source. “You’d take the money any day.”