Amazon purchases MGM, studio behind James Bond, for $8.45B

DEAL OVERVIEW

Acquirer: Amazon

Target: MGM Studios

Total Transaction Size: $8.45 billion

Closed date: No firm close date

Financial advisor to S&P Global’s:

Financial advisors to MGM: Morgan Stanley

On May 26th 2021, Amazon announced that it will acquire MGM for a price of $8.45 billion in what will be its second-largest acquisition since the $13.7 billion purchase of Whole Foods in 2017.

This acquisition comes at a time when Amazon is looking to bolster its video streaming service, Prime Video, in order to compete with the likes of Netflix and Disney. The company had spent $11 billion on producing TV shows, movies and music for Prime rising from the $7.8 billion spent back in 2019.

In a statement, MGM Chairman Kevin Ulrich said: “The opportunity to align MGM’s storied history with Amazon is an inspiring combination.”

company details

Acquiring company : Amazon

Amazon.com is an multinational conglomerate which focuses on e-commerce, cloud computing, digital streaming, and artificial intelligence. According to Kantar Group, a data analytics and brand consulting company, it is the world’s most valuable brand. It is also the second largest private employer in the United States.

Credits: Amazon

Headquarters: Seattle, Washington, U.S.

CEO: Andy Jassy

Number of employees: 1 298 000 (Dec. 2020)

Market Cap: $1.75 trillion (as of 14/09/2021)

EV: $1.79 trillion

LTM Revenue: $443.3 billion (June 30, 2021)

EBITDA: $59.32 billion

Enterprise Value/Revenue: 4.04

Enterprise Value/EBITDA: 30.18

Target company : MGM  

Metro-Goldwyn-Mayer Studios is one of the world’s oldest film studios, focused on the production and distribution of films and television programs. Being founded in 1924, the company’s major productions include the Rocky franchise and the James Bond franchise. After a prosperous 20th century, MGM filed for Chapter 11 bankruptcy in 2010. MGM emerged from bankruptcy later that year and in 2020, the company began exploring a sale to satisfy its creditors.

Credits: MGM Studios

Headquarters : Beverly Hills, California, U.S.

Chairman: Kevin Ulrich

Number of employees: 750 (March 2020)

Market Cap: $ 47.77 billion (as of 09/09/2021)

LTM Revenue: N/A

EBITDA: N/A

RATIONALE

With this acquisition, Amazon will take over MGM’s wide-ranging catalog including 4,000 films and 17,000 TV shows. MGM’s vast catalog include classic Hollywood films like “The Wizard of Oz”, “Gone With the Wind”, “Rocky”, “Silence of the Lambs” and “Pink Panther.” MGM also produces series such as The Handmaid’s Tale, Fargo, Shark Tank and The Voice. Most importantly, MGM studio owns the James Bond catalog which can be considered as the company’s ‘crown jewel’.

“The real financial value behind this deal is the treasure trove of IP in the deep catalog that we plan to reimagine and develop together with MGM’s talented team” said Mike Hopkins, senior vice president of Prime Video and Amazon Studios.

Therefore, the second largest acquisition in Amazon’s history is, according to Jeff Bezos, justified by the “flywheel effect”. The company aims to attract more subscribers towards Prime memberships by investing heavily on its own video streaming platform. In consequence, by attracting more subscribers to Prime services, the company expects these subscribers to spend and consume more.

RISKS AND UNCERTAINTIES

This deal could raise antitrust concerns for Amazon as it currently faces probes in the United States by multiple federal agencies and in Europe by EU antitrust regulators. In October 2020, Amazon was found to have “monopoly power over third-party sellers on its marketplace” according to a report issued by the House Judiciary antitrust subcommittee. They have argued that “Amazon’s role as a marketplace provider gives it privileged access to nonpublic third-party seller data.”

The insight “allows Amazon to focus its offers in the best-selling products across product categories and to adjust its offers in view of non-public data of competing sellers”

-EU regulators
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