Few limits for big media buyouts

NEW YORK (Reuters) - Private equity firms are knocking on the doors of Time Warner Inc. TWX.N and IAC/InterActive IACI.O, making their case for various deals with the two conglomerates.

Chairman of the Board and Chief Executive Officer of Time Warner Inc., Richard Parsons answers questions during the Reuters Media Summit in New York, November 28, 2006. REUTERS/Brendan McDermid

The firms’ pursuit of these companies underscores private equity’s growing willingness to tackle large and complicated media and technology businesses -- an area they previously tried to avoid.

“Probably every private equity firm has approached us about every conceivable” idea, said Time Warner CEO Richard Parsons, speaking at the Reuters Media Summit in New York on Tuesday. “There is more money out here chasing deals, so these guys are out trying to champion or put together anything that you could conceive of. So we’ve heard every idea that’s out there. But our focus is on executing on our strategy.”

Approaching Time Warner, a media and Internet company with a market capitalization of $81.78 billion, goes counter to private equity’s historic practice of seeking deals with undervalued, easy-to-understand businesses. The largest ever private equity buyout is the roughly $33 billion purchase of RJR Nabisco.

But buyout firms, which buy and sell companies, are set to raise a record $300 billion this year, analysts say. The firms and their bankers are looking to put the money to work quickly.

Parsons said that his job is to maximize the company’s value for shareholders, and that no private equity deal was under way.

“In theory, if someone came and offered you an amount of money that you felt was greater than you could achieve managing the company as it’s currently managed or in some other construction, you’d have to look at that and evaluate that,” Parsons said, speaking hypothetically of offers for the whole company or larger parts. “But no one has so far.”

And while private equity executives extol the benefits of private corporate ownership, Parsons said he saw benefits and concerns with their aggressive deal pursuits.

“The ubiquitous availability of capital is part of a spur of innovation, it’s helping to fund innovation,” he said after a Reuters television interview. He was referring to buyout funds’ ability to inject cash into companies and to offer a new approach to management. On the other hand, he worries about the short term focus some of the funds have shown, and whether these investors are “renters, not owners.”

For his part, IAC/InterActive CEO Barry Diller said that private equity firms were constantly knocking on his door to express interest in Expedia EXPE.O, the travel Web site spun off from IAC. IAC, a $10 billion company made up of several diverse Internet businesses, isn't immune from that interest either.

“People have come and made their arguments to us. I can’t tell you we wouldn’t do it on either IAC or Expedia. I doubt we would,” he said at the Media Summit on Monday. “I can’t say ‘no,’ because I don’t know for sure. I’ve not yet met the compelling case why that makes sense for a company like ours.”

Weak cash flows and complex business plans used to steer buyout firms away from technology. Not anymore.

The value for the first nine months for technology M&A was $166.6 billion, on 3,273 deals, making it the most active industry for deals, according to Dealogic. That compares to $139.7 billion on 3,074 deals in the year-ago period.

Institutional investors such as pension funds have poured money into private equity funds because top-tier firms are routinely producing returns of 30 percent or more on average. By comparison, equity market returns have been lower in the last few years.