Nearly all radio and TV stocks dropped Monday as Wall Street reeled from Lehman Brothers filing Chapter 11. The ranks of major investment banks was also reduced by Merrill Lynch announcing a deal to be acquired by Bank of America for $50 billion.
Rumors were swirling last week that Lehman was seeking to sell itself, possibly to BofA. But the financial industry was shaken to the core over the weekend when it turned out that BofA was actually buying Merrill and that no buyer had been found for Lehman, since the US government refused to offer the sort of support it had given to persuade JP Morgan Chase to acquire Bear Stearns back in March.
Merrill CEO John Thain had been moved to take action as he pondered what could happen to the entire sector in the event of a Lehman bankruptcy. Indeed, he was wise to have such concerns, since that proved to be not just a theoretical exercise.
BofA CEO Ken Lewis insisted Monday that he had felt no pressure from federal regulators to do the deal to acquire Merrill.
The question remaining is what happens to Lehman as it continues to operate under Federal Bankruptcy Court protection from creditors. Many Wall Street observers believe the various operations of the company will be sold off, but that it will be an orderly liquidation.
RBR/TVBR observation: Once again we were disheartened to receive farewell emails yesterday from the entertainment sector analysts at Lehman – Anthony DiClemente, George Hawkey, Vijay Jayant and James Ratcliffe. DiClemente had reduced the number of broadcast stocks under his coverage a few months back, but at least we could still count him among the few Wall Street analysts still following some of the pure-play radio and TV companies. It wasn’t very long ago that we received a similar message from Victor Miller, as Bear Stearns became a chapter in the Wall Street history book.
Not only are there very few analysts left covering the broadcasting sector, but we also have to worry about future financing. With fewer big investment banks, who will provide the money when the economy improves, the ad recession ends and people again try to put together some big radio and TV transactions – or even IPOs?