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While increased consolidation has been the overriding theme of most sector analyses over the past year, corporate activity in the media industry has been notable for its political dimension.The view currently favoured in the City, that the media is now an industry like any other and therefore requires no particular safeguards on ownership, is beginning to curry favour with New Labour.The Government clearly believes that a more relaxed regulatory attitude to media ownership is required in the interests of increasing both corporate activity and competition within the sector.To this end, the Government’s business manifesto spoke specifically of the need to abolish “archaic regulations that are slowing down the pace of innovation and change”. It also stated its aim – which has received cross-party support – of creating a specific cross-media regulator (Ofcom) to introduce more clarity on corporate activity within the sector.While this has been welcomed by the City, many corporate lawyers point to an already buoyant M&A market, which they anticipate will keep the deals flowing in the meantime.“There is no question that the media sector will continue to be very active over the next year,” says Herbert Smith corporate partner James Palmer.“We are seeing fundamental changes in the way these businesses are operated, not least because of the impact of the internet on the media sector.”Palmer has seen his fair share of big deals. He advised Time Warner on its proposed £13.6bn merger talks with EMI, which was advised by Freshfields Bruckhaus Deringer. The deal was abandoned when it became clear that it would fail on regulatory grounds. As with most sectors, the big transactions were dominated by the big firms, with Freshfields the clear leader with 13 deals – nearly twice the number of its nearest rivals Slaughter and May and Linklaters & Alliance, according to data supplied by mergermarket.Freshfields advised leading German media company Bertelsmann on its innovative share swap with European media giant Group Bruxelles Lambert (GBL) – one of the headline deals of the year.The deal saw Bertelsmann take a 30% stake in RTL Group, another GBL company, for a swap of 25% of Bertelsmann’s shares. Competition partner Michael Esserwellie led the Freshfields team advising on regulatory issues, with Hengeler Mueller Weitzel Wirtz advising Bertelsmann on the corporate side.City analysts heralded the deal – which allows Bertelsmann shares to be put on the market as GBL has an option to float them in three years time – as evidence of the willingness of large family-owned (mittelstand) companies in Germany to tap the capital markets.Mittelstand companies, which control the majority of German business, have traditionally been against the principle of public ownership.Perhaps the highest profile deal of recent months was the long-awaited buyout of Yell – BT’s telephone directory and internet business – which is being sold to a consortium of private equity firms for £2.14bn.The legal cast list was predictably top tier. Clifford Chance, led by corporate partners Adam Signy and David Walker, scored a new client by advising Yell’s management, while Allen & Overy, led by corporate partners Eileen Kelliher and Alistair Asher, secured a heavyweight instruction by advising BT.Private equity groups Apax Partners and Hicks Muse Tate & Furst went with usual advisers Travers Smith Braithwaite and Weil Gotshal & Manges respectively.The Yell sale is to be financed with the biggest leveraged loan and high yield bond package ever seen in the European junk market.The transaction was also interesting in terms of underlining the viability of private equity as a credible alternative to the capital markets. Until a month before the Yell deal was announced, BT remained intent on de-merging its directories business. Volatile public markets and regulatory issues would have made de-merger a lengthy and complicated business and the private equity market delivered because it was able to offer hard cash quickly.The magic circle has not enjoyed a complete monopoly on the big deals, however, with a number of firms lower down the pecking order putting in a good showing. Lovells’ visibility within the sector is credited as a major factor behind its resurgent M&A practice this year. The firm advised long-standing client Granada on its £7bn flotation and was swiftly retained by AOL to advise on its joint purchase with Wal-Mart of a 20% stake in Shopsmart.com.Head of corporate Hugh Nineman led the Granada deal, with corporate partner Richard Ufland advising on the AOL transaction. Looking to the future the overriding prediction is to expect more of the same. While political and cultural issues still have a major effect on corporate activity within the sector – particularly in more heavily regulated countries such as France and Germany – City lawyers feel that consolidation in the media is far from reaching saturation point.“Despite the sprinkling of mega-deals, there is still a continuing push towards globalisation for media companies, many of which are still, for all intents and purposes, nationally focused,” says Herbert Smith’s Palmer. “Media remains a sector to be targeted.”

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