Why media giants are heading for break-ups

One Segantii scoop to start: The former Segantii Capital Management employee whose trading formed part of the US probe into Morgan Stanley earlier this year has said the US Securities and Exchange Commission isn’t planning to take action against him.

And another deal scoop: Three private equity groups are battling it out in the final stages of an auction process for school operator Nord Anglia, in what is likely to be one of the largest European deals of the year.

In today’s newsletter:

• Warner Bros Discovery and other potential break-ups

• Meta looks to make a bet on a glasses giant

• Battered market hits Anglo American

Why media giants are eyeing a break-up

The media industry has become a collection of hulking businesses in recent years, with consolidation creating a constellation of mega-companies.

One such giant is Warner Bros Discovery. But the group has quickly learned that having so many different brands and products under one roof doesn’t always maximise value — especially as the media industry tries to survive a new era dominated by digital streaming.

The solution? Potentially breaking up. The FT reported on Thursday that WBD has discussed a dramatic plan to split its digital streaming and studio businesses from its legacy television networks.

The company, which has $39bn in debt, is the result of WarnerMedia merging with Discovery two years ago, after the former was spun off from AT&T. Painfully, shares have fallen by about 70 per cent since the two combined.

Chief executive David Zaslav is weighing a handful of strategic options. One of them is selling assets, another is hiving off the Warner Bros movie studio and Max streaming service into a new company.

Breaking up any giant isn’t easy. And the manoeuvre at WBD could spur serious creditor backlash. As Bank of America analyst Jessica Reif Ehrlich put it: “the optics are not ideal”.

Even with all the potential heartache that splitting up a media giant can lead to, WBD is in good company.

In December, Lionsgate carved out its studio business by listing it through a merger with a blank-cheque company, and called it Lionsgate Studios. (Separating its Starz pay-TV network, though, did lead to a creditor revolt.)

There seems to be more on the horizon. Last week the FT reported that German billionaire Mathias Döpfner and private equity group KKR are negotiating a break-up of media conglomerate Axel Springer, in a deal that would separate the group’s media assets from its digital classifieds operation.

Then there’s the Telegraph, whose owner, RedBird IMI, is trying to sell alongside Spectator magazine. At the auction, which is taking place this summer, potential buyers can bid for the publication separately or together.

RedBird IMI is holding out for a combined valuation of at least £600mn ahead of first-round bids on Friday.

For WBD, though, DD will be keeping tabs on whether potentially pissing off a bunch of creditors is worth it.

Meta’s bet on its future in sunglasses

For years, Facebook owner Meta has been drawing grand plans for the metaverse: a future that would include office workers donning headsets instead of commuting to the office and friends socialising at parties virtually.

One of the more successful products Meta has launched as part of the scheme are its “Ray-Ban Meta” smart glasses in a partnership with eyewear giant EssilorLuxottica. They look like regular sunglasses, but have features like a voice-activated AI assistant.

Now it appears Mark Zuckerberg is looking to take the relationship with the Franco-Italian group one step further.

DD’s Arash Massoudi and the FT’s Hannah Murphy and Silvia Sciorilli Borrelli report that Meta’s exploring a multibillion-euro investment in the company as the social media giant ramps up its push into smart glasses.

The investment would include a small stake in the €87bn group, according to multiple people with knowledge of its thinking.

While the most ambitious version of the metaverse hasn’t panned out so far, augmented reality could be a more realistic alternative.

In 2020, what was then Facebook bought a $5.7bn stake in the Indian telecoms company Reliance Jio. At the time, it was the social media giant’s single biggest investment in another company, aside from acquisitions.

While that partnership centered on expanding Facebook’s foothold in commerce and payments, this one would propel the company further into wearable technology.

The newest generation of Ray-Ban Meta glasses sold more in a few months than the previous one from 2021 did in two years, EssilorLuxottica’s chief executive Francesco Milleri said at an event earlier this week.

And the benefits could cut both ways: the glasses giant is surely looking to attract younger buyers. As we wrote about earlier this week, the company just announced plans to buy hypewear brand Supreme.

Both partnerships are very likely part of a plan to get Gen Z wearing their glasses.

Shh . . . Don’t mention ‘lab-grown’

Anglo American is itching to show investors that there are some diamonds in the rough.

But the London-listed mining group’s second-quarter production update underlined that De Beers is far from shining; more production cuts are to come for Anglo’s storied diamond subsidiary, the FT’s Harry Dempsey reports.

Demand for rough diamonds was hammered in recent months because of feeble luxury goods demand in China, as well as an overhang of stock for the traders and manufacturers that buy mined stones.

As a result, De Beers is planning to further cut output. The recent cuts led to a 15 per cent drop in year-on-year gemstone production in the three months to the end of May.

Two months after rebuffing BHP’s £39bn takeover approach, the early signs for Anglo to execute on such an ambitious defence plan have not been particularly encouraging. The move would leave its focus on the sparkly gems in its portfolio: copper, iron ore and fertiliser.

The biggest blow has been an underground fire at the end of last month at the Grosvenor metallurgical coal mine in Queensland, Australia.

That prompted a full-year production guidance cut yesterday and has complicated the sale of the steelmaking coal division, which is estimated to be worth about $5bn.

Annual production guidance for copper and iron ore was on track to hit the upper end of guidance and beat analyst consensus, giving investors something to temper those setbacks.

A positive spin on the De Beers production cuts is that they provide Anglo with a way to boost cash flow by reducing unsold inventories that suck away working capital. This would give the diamond market a faster route to recovery.

“We take this as a positive in limiting the ability of buyers to build up inventory in the midstream,” said Peel Hunt analysts.

But the need to slash output again underlines the torrid state of the market. And there was not even a nod to the elephant in the room: lab-grown diamonds.

Anglo chief executive Duncan Wanblad has already acknowledged that De Beers is the hardest of the four parts of his break-up plan, which also involves a spin-off of Anglo American Platinum and selling or closing down its nickel business.

The South African will have his work cut out to convince buyers to see the sparkle in De Beers.

Job moves

• Goldman Sachs has named Nimesh Khiroya as co-head of mergers and acquisitions in Emea, in addition to his current role as co-head of UK investment banking. Goldman has also hired Carsten Woehrn and Haidee Lee, who both previously worked at JPMorgan, as partners in M&A. Woehrn will co-lead Emea M&A, while Lee will join David Kamo as global co-head of sponsor M&A. (It marks a return for Lee to Goldman.)

• Morgan Stanley has promoted Tom Miles, previously head of M&A in the Americas, to global co-head alongside John Collins. Some other promotions: Andrew Wetenhall will become deputy head of investment banking, while Anish Shah becomes global head of debt capital markets.

• Jefferies’ chief executive of Emea Huw Tucker is retiring. He will continue to work as a non-executive director of the bank’s international board. Tucker will be replaced by Evie Vanezi, who previously worked as global head of enterprise risk.

Smart reads

Exit problem An overhang of ageing and unsold private tech companies poses a big problem for venture capital firms relying on exits, the FT’s Richard Waters writes.

Brookfield’s next CEO Meet 36-year-old Connor Teskey, who the alternative-asset giant Brookfield is lining up to take over the reins as chief executive, Bloomberg reveals.

Media mismanagement As Warner Bros Discovery weighs a break-up, Lex asks: when will the clock run out for chief executive David Zaslav?

News round-up

Blackstone increases pace of investment as it bets on looming interest rate cuts (FT)

Distressed crypto investor ordered to repay $1.9mn taken from failed company (FT)

Investors revive ‘Trump trade’ in bet on US bonds (FT)

Canary Wharf plans to take chunks out of HSBC tower in office overhaul (FT)

Titanic maker Harland & Wolff seeks fresh loan as it fights for survival (FT)

London mining Spac plots spree in copper M&A after $300mn Turkey deal (FT)

TSMC raises hopes of a prolonged AI boom (FT)

Goldman Sachs opens up an investment strategy once reserved for the wealthy (WSJ)