America's No. 1 financial conglomerate

Chapter 647 Media Giant

On March 2nd, a breaking news story that was enough to reshape the North American media industry swept across the front pages of major American media outlets.

Authoritative media outlets such as The Hollywood Reporter, The Wall Street Journal, and The New York Times simultaneously released breaking news, and the source of this industry earthquake was none other than MGM's flagship print media, The West Coast News.

"The Hollywood behemoth swallows the television empire."

This report, which carried the implication of official endorsement from MGM, instantly stirred up a huge wave in the global media industry, bringing the media merger and acquisition craze that had been heating up since 1996 to a landmark event that can be described as the pinnacle.

According to the latest transaction documents exclusively obtained by this newspaper, MGM Resorts plans to acquire CBS for a total valuation of $124 billion through a combination of 30% stock and 70% cash.

"This blockbuster acquisition, spanning the two core sectors of film and television, will not only set a record for the second-largest acquisition of a public television network by Hollywood, but may also completely reshape the competitive landscape of the American media industry."

"This is the second of the three major U.S. public television networks to join the Hollywood capital landscape, following Disney's $190 billion acquisition of ABC."

"When Disney acquired ABC, the industry was already speculating about the ultimate fate of the three major public television networks. Now that MGM has acquired CBS, whether the remaining NBC can maintain its independent status remains to be seen, and only time will tell."

The West Coast News report not only revealed the core transaction structure of the merger, but also disclosed the specific plan and the power structure within MGM after the acquisition of CBS.

"Of the $124 billion acquisition agreement, 70% will be paid in cash, and the remaining 30% will be completed through a share swap of MGM's parent company, MGM Grand."

"After the transaction is completed, CBS's original shareholders will hold 28% of the shares of the MGM Group, surpassing Bertelsmann Group and Fengyun Capital to become the largest shareholder of MGM."

This acquisition, which on the surface appeared to be a takeover by CBS shareholders, immediately sparked widespread speculation in the market about who would gain control of MGM.

In a villa in Hidden Hills, Los Angeles, Annie watched the merger news rolling on TV and asked Ernst beside her, "So, we're now under the control of the Morgan Group?"

Jessica, who had been quite happy, instantly changed her expression from surprise to astonishment, and looked at Ernst. "So MGM won't be under your control anymore?"

She was initially quite excited watching the scene on TV. Hundreds of journalists and photographers from around the world had gathered outside the CBS headquarters building in Manhattan, New York, and the flashing lights illuminated the iconic building as if it were in the middle of the night.

Everyone went crazy over this news and wanted to verify its authenticity.

But when these media professionals saw a MGM lion logo being moved into the CBS headquarters building, some floors of which were for sale, everything else was self-evident.

With MGM now and CBS added to the mix, will her film and television company, which she co-founded with Connery, lack collaborations in the future?

"Following Disney, another super multimedia empire covering film production, television broadcasting, and radio networks has been born." The CNBS news channel host's voice came through the television at the scene, but the two women were no longer concerned about this at the moment.

"What do you mean by being absorbed by Morgan? It's just a two-way cooperation based on strategic synergy," Ernst replied casually.

"But didn't CBS's original shareholders become the largest shareholder of Michael?" Annie remembered that was reported in the news earlier.

This is the effect Ernst wanted: to step back and remain behind the scenes.

However, he still maintains firm control over the media empire.

First came the financing from Goldman Sachs, followed by the acquisition of Bertelsmann Music Group, which reduced Ernst's stake in the MGM Group to around 60%.

MGM's acquisition of CBS is actually a way for MGM to consolidate its control over the MGM Group.

70% of the cash consideration was paid by MGM, while 30% of the equity consideration was exchanged by MGM.

Accordingly, MGM will then exchange its own shares for MGM's CBS shares, ultimately achieving full ownership of CBS.

Following this series of actions, MGM's stake increased to 64%, laying a solid foundation for MGM's future IPO, multiple rounds of financing, and subsequent mergers and acquisitions.

"The equity dilution after listing and the capital operations required for industry consolidation will dilute the equity. Increasing the shareholding ratio in advance is to ensure that no matter how many rounds of capital operations there are in the future, my control over MGM will not fall into other hands." Ernst's strategic intention is very clear.

MGM is unlikely to add any new shareholders in the future. With Goldman Sachs, CBS backed by the Morgan financial group, and Bertelsmann in Europe, plus MGM, it is already invincible in the media industry.

Regarding the equity issue that Anne mentioned, he explained, "On the surface, CBS is currently the largest shareholder of Michael, but after the acquisition, it will only hold 28% of the shares."

After he finished speaking, he remembered that the other party didn't seem to know that besides Fengyun Capital, all the other capital in Migole was also under the family business.

After I explained it to her in detail, her eyes widened. "So, you still actually control more than 40% of the shares?"

"To be precise, it should be around 45%."

In the current shareholding structure of the MGM Group, Bertelsmann Group's original 21% stake has been diluted to 15.1% after this transaction.

After two rounds of strategic acquisitions, Goldman Sachs' stake, acquired through previous financing, is now less than 11.4%.

Although this percentage does not reach more than 50% absolute control, according to Michael's articles of association, he has veto power over key matters, which means that the core decisions of the group are still in his hands.

After feeling relieved, Annie had a new question: "Why would the Morgan Group be willing to hand over such a core asset as CBS?"

Jessica was completely bewildered and didn't dare to say anything.

Wasn't it an acquisition of CBS?

How did this get involved with the Morgan financial group?

Ernst, unaware of her thoughts, explained to Anne, "Because the Morgan Group has too much leverage in the media industry."

"Even if they offered me a CBS and established a friendly relationship, they wouldn't care."

The Morgan Group is indeed indifferent; in the media industry, its influence has long permeated every corner, making it the absolute industry leader.

The development of the three major American public television companies is almost inextricably linked to the Morgan financial group.

NBC was owned by GE, CBS was acquired by Westinghouse in 1995, and ABC was sold to Disney.

But behind all three deals, one name stands out: Morgan Stanley.

NBC is a subsidiary of General Electric, an industrial giant that was built up by the Morgan financial group, with key capital support for its growth coming from Morgan.

CBS was acquired by Westinghouse Electric in 1995. Westinghouse Electric, once a competitor of General Electric, had long been infiltrated by the Morgan financial group.

Westinghouse Electric's key collaboration with the military industry was facilitated by the Morgan Group.

The huge sums of money needed for the expansion also came from convertible bonds provided by the Morgan financial group.

During each economic crisis, these convertible bonds were converted into equity through debt restructuring, allowing the Morgan consortium to gradually gain actual control over Westinghouse Electric.

In the acquisition of ABC by Disney, Morgan Stanley was deeply involved as a financial advisor and led the capital operations of the transaction throughout.

Let alone the three major public television companies, which of the television network expansions of media giants like Fox and Time Warner didn't have the Morgan financial group's influence?

In other words, MGM targeted those local small channels from the very beginning, and carved out a niche for itself based on content.

The Morgan financial group took the initiative to seek cooperation, offering generous gifts, hoping to incorporate MGM, this unexpected entity, into its own capital system.

Let's reserve this spot first, and then gradually work our way up through successive economic cycles.

"Therefore, for the Morgan Group, the rise of MGM is both a potential threat and a high-quality asset worth acquiring."

"Bringing CBS into MGM's portfolio is essentially a move by the Morgan Group to 'co-opt' it. By relinquishing a controlling stake in CBS, they establish a deeply intertwined partnership with MGM, bringing this independently growing industry variable into their own media ecosystem. For them, it's a sure-fire way to make money," Ernst explained.

Since the other party had already stuffed the fatty meat into his mouth, he had no reason not to eat it.

If MGM were to acquire CBS, the new MGM Media empire would control 27 television stations, 212 radio stations, the rights to 2.5 films, and a library of 1.4 hours of television programming, covering 82% of television households across the United States.

This scale far exceeds the size of Disney's business after acquiring ABC; it can no longer be described as a behemoth.

Despite its current decline and lower ratings compared to NBC and ABC, CBS remains the undisputed content giant among the three major public television networks, boasting the largest programming library.

MGM, needless to say, owns more than a third of Hollywood's classic film library.

The merger of the two is equivalent to maximizing content production, and the United States will never have a media outlet with such a rich content foundation again.

This is absolutely attractive to users and is a symbol of soft power.

Of course, it's not without its drawbacks, or rather, it's a happy kind of trouble.

That is the challenge at the regulatory level.

Because after integrating MGM's television stations, the combined viewership data has exceeded the 35% viewership cap for media companies stipulated in the Telecommunications Act.

Although Morgan Stanley stated that it would push Congress to amend the bill to raise the cap.

However, it is impossible to achieve in the short term.