UPDATE 2-William Morris, Silver Lake to buy talent company IMG

Wed Dec 18, 2013 2:16pm EST

(Adds antitrust expert comment in paragraphs six and seven)

By Greg Roumeliotis and Liana B. Baker

NEW YORK Dec 18 (Reuters) - Talent agency William Morris Endeavor Entertainment LLC and its backer, private equity firm Silver Lake, will acquire IMG Worldwide Inc in a deal that will bulk up William Morris' roster of star athlete clients and give it more exposure to the fast-growing sports market.

Financial details were not disclosed in the companies' statement on Wednesday announcing the deal, but Reuters previously reported the deal to be worth about $2.3 billion.

Mubadala Development Company will be a minority investor in the transaction.

IMG, whose clients include top tennis player Novak Djokovic and super model Gisele Bundchen, would be a significant boost to William Morris, which already represents some of Hollywood's biggest actors and top names in music. William Morris merged with the Endeavor talent agency in 2009 to become one of Hollywood's biggest players.

IMG, founded in 1960 when it signed golfer Arnold Palmer, has 3,500 employees operating in 30 counties.

The deal may be reviewed by the Justice Department to ensure it complies with antitrust law. It will likely win approval because there is a fair number of competitors in the field and the two companies have different specialties, said Jamilla Ferris, formerly of the Justice Department and now at Hunton and Williams LLP.

"At face value, it seems like they're really operating in different markets and there's a lot of competition here," she said. "It seems fine to me but you never really know what the documents say."

A source familiar with the matter the combined companies are aiming to cut costs between $50 million and $100 million. IMG generates earnings before interest, taxes and amortization (EBITDA) between $180 million and $190 million.

William Morris, in which Silver Lake acquired a minority stake last year, has EBITDA of $80 million to $100 million and very little debt, according to the source, who asked not to be identified discussing confidential financial information.

While the acquisition makes strategic sense for William Morris, it would have to be well executed to avoid losing clients and to maintain revenue while cutting costs, the source said.

The sale of IMG was driven by the trustee running the estate of Teddy Forstmann, whose private equity firm, Forstmann Little & Co, acquired IMG for $750 million in 2004. The $2 billion plus price tag creates a significant return for investors.

William Morris beat out a consortium of talent agency ICM Partners Inc and private equity fund manager Carlyle Group LP , which were also finalists in the sales auction. Also bidding was buyout firm CVC Capital Partners Ltd, which had teamed up with Chernin Group LLC, Reuters previously reported.

The different cultures at the two companies may, however, be a challenge to integrate because IMG is centered on sports and William Morris is steeped in Hollywood, the person said.

William Morris is run by Ari Emanuel, brother of Chicago Mayor Rahm Emanuel, and Patrick Whitesell.

Forstmann Little has held onto IMG longer than a typical investment period for private equity, and for years it has rebuffed overtures from prospective buyers. Buyout interest increased following Teddy Forstmann's departure in April 2011 as IMG chairman and chief executive. He died later that year.

Buyers that had approached Teddy Forstmann included former Yahoo CEO Terry Semel, who was willing to pay $1.5 billion in 2008. Sources told Reuters at the time that Teddy Forstmann wanted at least twice the amount.

Silver Lake and William Morris Endeavor were advised and financed by J.P. Morgan, Barclays, RBC Capital Markets and Deutsche Bank Securities Inc. and advised by The Raine Group, Dean Bradley Osborne, Lazard, Simpson Thacher & Bartlett and Paul, Weiss, Rifkind, Wharton & Garrison. Evercore and Morgan Stanley served as the financial advisers to Forstmann Little. (Additional reporting by Nicola Leske in New York and Diane Bartz in Washington; Editing by Lisa Von Ahn and Kenneth Barry)

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