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Iger Succession Setbacks & Elon’s Debt Nosedive

Candle Media co-founders and former Disney executives Kevin Mayer and Tom Staggs. Photo: Greg Doherty/Getty Images
William D. Cohan
October 8, 2023

There was more than a bit of schadenfreude circulating on Wall Street this week over the fate of Candle Media, the Blackstone-backed entertainment company led by former Disney executives Kevin Mayer and Tom Staggs, which is expected to earn about 50 percent less than predicted in 2023, according to our friend Lucas Shaw at Bloomberg. Candle, you’ll recall, launched with billions of dollars in dry powder to scoop up promising content studios, which it did with abandon—paying exorbitant, top-of-the-market prices for stakes in Reese Witherspoon’s Hello Sunshine and Moonbug Entertainment, among others—right before the entire Hollywood ecosystem hit the rocks. 

I’m most interested in what this means for the dynamic duo of Mayer and Staggs, who are also consulting for Bob Iger and have been considered potential successors at Disney once Iger steps down in 2026. Alas, and despite the vote of confidence from Blackstone, I don’t see how Steve Schwarzman allows Mayer and Staggs to do anything but focus on Candle from here on out. If it were me, that would mean the end of this little excursion the two men have been on to Disney World. If you want to play around and consult with Iger about partners for ESPN, then get the EBITDA for Candle back to the $330 million Blackstone was expecting for 2023.

Of course, it is also possible, as I have suspected all along, that Iger and Schwarzman have an agreement that Disney will buy Candle, or some of its assets, at some point in the next few years, if for no other reason than to get Mayer and Staggs back into the Disney succession discussion. Indeed, it’s always been my contention that a potential deal for Candle is the only plausible explanation for why Steve is allowing them to work for Iger on the side—especially when, as my partner Dylan Byers reported last month, they’re consulting on divisions across the company, including ESPN and even Hotstar, in India. (Their whole consulting arrangement, as you know, was first revealed by my other partner, Matt Belloni.)

If that fix is not already in, there really is no other acceptable reason why the two men would not be spending 100 percent of their time focused on reviving Candle’s fortunes. Sure, Blackstone says they’re standing behind Candle’s management, and made a concession to them due to the broader macroeconomic conditions afflicting the media industry at the moment, including a “once-in-a-generation” writers’ and actors’ strike. But until the Candle EBITDA returns the $330 million, Steve should call up Bob and tell him the gig is up. After all, Blackstone and its banks have put some $4 billion behind the Candle strategic vision and so that is what they must be focused on, at least until Blackstone gets some money back—and as far as I can tell, that hasn’t happened yet and won’t be happening anytime soon. 

In any case, are either Mayer or Staggs really the answer to Disney’s succession dilemma? Both men are in their early 60s, and while they look far younger—money will do that for you—they’re not that much younger than Iger, who is 72, and will presumably stick around until he’s 75. Boards of directors don’t usually hire a 65 year old—which is how old Staggs will be in three years—to lead their company for the next whatever years. I am now beginning to think that neither of these two men can realistically be considered an Iger successor at this point, unless it’s for a short interregnum, which of course is what Iger, the sequel, is supposed to be all about. 

In fact, I’m not sure where this leaves the succession picture at Disney. If Jimmy Pitaro, age 54, somehow threads the needle and can pull off the proverbial triple lutz and make ESPN a profitable digital service, he will immediately vault into contention for the Big Job in Burbank. There is also Josh D’Amaro, the head of Disney’s parks, experiences and products group. He’s 52 and has been hitting it out of the park, so to speak, for the last year. But is that D’Amaro’s doing? Or is it just a rebound from the pandemic, when the Disney parks were shuttered? It’s a good question, and probably too early to tell. 

But I can’t imagine that Iger will again choose the head of parks to run all of Disney. He made that mistake once with Bob Chapek and I don’t see that happening again. Could Joe Earley, the new head of streaming, get the top job? He’s got a tough road ahead to make Disney’s streaming business profitable. He’ll also probably have the assignment of marrying Hulu to the rest of Disney’s streaming offerings once Disney pays up—at a minimum price of around $10 billion and counting—for the one-third of Hulu that it doesn’t already own. Could he pull off both jobs, and put himself in the corner office? I suppose so, but I wouldn’t count on it. 

All of which is to say that there is still no clear successor to Iger at Disney. And the fact that Candle is having a poor year means that the prospects for Mayer or Staggs just got dimmer than they already were.

Dear Byron…

Meanwhile, the bidding is still open for Disney’s linear television assets, which appears to be generating less deal heat than perhaps Iger anticipated. So far, the biggest (and only) public offer has been made by Byron Allen, who proposed a $10 billion transaction for the entire portfolio, including ABC, eight ABC affiliates, FX and National Geographic. Allen doubled down on his offer again last week, at Kara Swisher’s Code conference, calling himself “the prettiest girl at the dance.” 

Byron made a credible case, in conversation with CNBC journalist Julia Boorstin: He loves linear TV, he has the capital, and few people are more excited about the future of the medium. Indeed, he said he eagerly called Bob up after he effectively put ABC up for sale in Sun Valley. He’s done a fine job running the Weather Channel, among other media assets, which he has made more profitable. ABC, he argued, is well below his ownership limit for local affiliates. 

Alas, according to Byron, Iger told him he was not ready to sell, despite having put that “for sale” sign on the properties. I suspect what Iger really meant to convey to Byron is that he’s not ready to sell at the $10 billion price that Byron has proposed. I assure you that if Byron had offered, say, $20 billion, Iger would not have let him off the phone until he had signed a deal. 

To be honest, I don’t blame Iger for yawning at Byron’s number. I don’t know what the right price is for ABC and the other pieces Byron is looking to buy, in large part because who knows how much EBITDA those businesses are generating these days, or how much they are likely to generate in the future. We all know the knife is falling, we just don’t know how fast. But I suspect that it’s not falling fast enough to make Byron’s $10 billion offer look compelling. 

What might be more compelling, though, is if Byron were to team up with a private equity behemoth to make an offer for Disney’s linear TV assets. Assuming its current experience with Candle hasn’t soured it on media, Blackstone would be a great partner for Byron, as would the likes of KKR and Apollo, which already owns a bunch of local television stations. Byron’s company is private so only he (and probably plenty of others) know how his financial performance has been in recent years. He also is the only one who can judge how accurate it is when he says he has access to plenty of capital. 

He’s still going to have to raise his bid well past $10 billion to get Iger’s attention, in my opinion. The combination of, say, Apollo and Byron Allen together coming to Iger with a fully financed offer of, say, $15 billion—I’m just pulling this out of thin air because the income statement for this business is still a mystery—would have to be something for Iger to take seriously. In fact, he’d have to take it seriously, as a fiduciary for Disney’s shareholders and creditors, and he’d have to take it to his board of directors for consideration. The reason he could shut Byron’s $10 billion offer down with an “I’m not ready” is because he knew the offer was not compelling and was way off the mark. Had it been closer to the number he’s hoping for, he would have engaged with Byron. He wouldn’t have had much choice.

My advice to you, Byron, not that you should take it, is to go find one of the many blue-chip private-equity/alternative asset management firms with limitless capital, cut a deal with them, and then present a united front to Iger, with a fully-financed, higher bid. Then I would leak the offer to the media and tell Iger it will explode in, say, two week’s time if he doesn’t take it. It’s risky, I know. But it’s also bold, and will force Iger to grapple with the lines of fear and greed: Fear that he may lose an attractive deal, and the greedy hope that someone else comes along with more. 

We all saw what happened when Shari Redstone, at Paramount Global, opted for greed when she took Penguin Random House’s $2.2 billion offer for Simon & Schuster. When the Justice Department blew up that deal, all that Redstone, Bob Bakish, et al. were left with was KKR’s bid of $1.62 billion, materially lower. So Iger doesn’t want to miss his window, especially when ABC is a wasting asset. After all, he certainly doesn’t want to be the second person trying to sell a linear TV network, if someone comes along and buys CBS before he can sell ABC. Get it done, and fast!

Springtime for Elon

Finally, some news and notes on Twitter/X C.E.O. Linda Yaccarino’s pitch to Wall Street last week to convince the seven big banks holding the company’s debt that X is in better financial health than it outwardly seems. The early reports are that she trumpeted the company’s revenue growth (in the high single-digits in the third quarter compared to the second) and that she and Elon expect X to be cash flow positive (including interest payments on the $13 billion debt) by the second half of 2024. That’s an improvement, of sorts, but if I were a banker over at Morgan Stanley, in Times Square, I would not find this very reassuring at all. In fact, I would argue that it is long past time to bail on the debt, and take the inevitable haircut that is coming its way or is already here.

By the way, I am a little surprised Yaccarino didn’t make the pilgrimage to the banks in person, given the gravity of the value destruction of the company under Elon Musk’s ownership. But, apparently, she just phoned the information in. Maybe she decided the news was so marginal at best, that it would be better to share it remotely. 

Anyway, Yaccarino’s good news is too little, too late, in my opinion. Sure, the banks are getting paid their $1.5 billion in annual interest, for now, thanks to the fact that the borrower is essentially the world’s richest man with a fortune of around $240 billion. But the company itself might as well be bankrupt, given its lack of cash flow, the way that Elon/X have been stiffing vendors and severed employees, and the continuing alienation of users and advertisers. Indeed, according to Linda, Visa’s recent ad spend on X amounted to a total of $10 during the past 12 weeks. That’s not a typo. AT&T spent $781 in advertising on Twitter in the last quarter. That isn’t a typo either. And yet somehow we are to believe that advertisers are returning to the platform?

The question persists as to whether Elon is tanking X on purpose in order to buy the debt back at a severe discount and retire it. Well, if he’s not doing that, he should be, at this point, given the operational dysfunction of the platform. Might as well make some chicken salad out of the chicken shit. After all, none of Elon’s recent pronouncements or moves or Linda’s comments and performances have done anything to increase the value of the X equity or its debt, which I’m told is worth about 50 cents on the dollar. And Elon has the money: his net worth has managed to increase by $100 billion so far this year. All that’s left is to tell the banks that he won’t keep paying their interest out of his own pocket, further driving down the value of the debt into bargain bottom territory. Boom! That would be the moment to pounce and offer the banks pennies on the dollar for the debt and, voila, his original purchase price of $44 billion is reduced down materially to close to the lost $31 billion of equity that he and his buddies ponied up a year ago.

I know all of this is far-fetched. But if Elon is as brilliant as he thinks he is—and as he must be to have accomplished all that he has—this is the only scheme that makes any sense any more. Make X so bad financially and operationally that the banks will give up the dream that things will improve and take their losses—which they know already that they have to do—and start turning the battleship around. If he can take X public (maybe through Bill Ackman’s SPARC) at any value above the equity he put into it, suddenly Elon looks like a genius again. First, though, he has to get rid of that $13 billion of bank debt.

This article has been updated.