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They Urged, They Merged: William Morris and Endeavor Agree to Become One

Oh, sure, it looks like the start of a beautiful friendship now. On April 27, three of the Endeavor partners who will sit on the new William Morris Endeavor Entertainment board, Ari Emanuel, Patrick Whitesell and Adam Venit, were shaking hands with agents and staff at the William Morris offices. And, earlier in the day, Morris boss Jim Wiatt went to Endeavor and introduced himself around. A day later, Endeavor co-founder Ari Emanuel was playing host to Wiatt as well as WMA’s John Fogelman, Jennifer Rudolph Walsh and Irv Weintraub as they all walked the Endeavor hallways and said hello.

But the truth is that this was an ugly negotiation leading up to the Hollywood history-making deal between 111-year-old William Morris and 14-year-old Endeavor to form one agency, the newly named WME Entertainment. (It’s no wonder that sounds like a new branch of the WWE.)

The rumors of a William Morris-Endeavor merger had been around for months and months, and I know some phone calls were exchanged after the end of the writers’ strike a year ago. But the reality is that these deals aren’t done overnight: Like everything in Hollywood that involves ego and money, they’re complicated. So I was the first to report that talks had heated up to the point where I was being told by mid-February the odds were “70/30” that the two agencies would do a deal.

Endeavor-WMA looked to be a great fit: William Morris with a powerhouse music division but also a motion-picture talent department needing more marquee names and a flagging television department except for its unscripted fare. Endeavor, on the other hand, had been signing marquee names and packaging prime-time series galore, and wanted that music money. The problem was that alpha-male owners of major agencies always want to be in charge. Last month, the meetings between principals at both agencies were so fraught with tension that the merger hung by a thread. After one especially snarling meeting, a depressed Emanuel started using the phrase, “We all need a bigger boat.”

One of the hurdles to overcome was the tax consequences of any deal. It all had to do with “LLC” and “S” corporations, which could have meant writing checks in the millions of dollars to the U.S. government. Then I reported on March 13 that the tax issues had been resolved.

By April 16, the WMA-Endeavor merger was back on. Endeavor offered to put “pencils down” if WMA “can live” with the financial terms dicated by Ari et al.

Members of the new agency’s board will be WMA CEO Wiatt, President Dave Wirtschafter, music-division head Peter Grosslight, motion-picture department topper John Fogelman and book bigwig Jennifer Rudolph Walsh. From Endeavor, board members will include Emanuel, Whitesell, Rick Rosen and Venit. So just nine, in all. A far cry from the current situation in which WMA has 20 board members, and Endeavor has 28 partners.

It may look as if the William Morris Agency has an advantage over Endeavor on the WME Entertainment’s new board. But I’ve confirmed that the five WMA members each have a single vote, and the four Endeavor members have one nnd a quarter votes each. So it’s even.

It will be at least 14 months before WMA’s new building is ready to house the newly merged agency. So, until then, both agencies will “mix and match” buildings, I’m told. I hear that television will be housed at Endeavor under Rosen. And Endeavor’s motion-picture department will move to the old Morris building. And, yes, Emanuel will move his office to WMA to be near Wiatt’s. (Didn’t I tell you this was going to get fun quickly?)

The consolidation will lead to major layoffs and resignations. Other agencies are telling me they’re already starting to feel the benefits of the tenpercentery shakeup by beginning talks with agents who may not make the cut at both WMA and Endeavor. But also look for some of those reps to band together and start their own agencies.

Two high-profile, motion-picture lit agents, David Lonner and Steve Rabineau, announced plans to jump (although insiders said they were pushed). Both defected to Morris from Endeavor back in 2003. I hear Mark Itkin, whose contract at WMA goes until at least 2012, is ready to make that move to CAA and fill the reality leadership position that has sat vacant all this time after Michael Camacho was pushed out. Since then, Camacho has been killing CAA in reality at UTA.

And Endeavor co-founder Tom Strickler resigned from Endeavor on the day the agency voted to merge. There was always known to be friction between him and Emanuel over the direction of the agency, though the two go back so many years and have been friends. Ari wept when he told the staff about Tom’s decision.

The Endeavor side has not tried to hide that its TV agents think WMA’s Aaron Kaplan should be “on top of the list” of people let go as soon as a deal is consummated. Hollywood is well aware that, under Kaplan, the Morris TV department has plummeted in prestige and power and packages, whereas Endeavor is a juggernaut these days. But Wiatt is Kaplan’s mentor, and Jim has been trying to wheedle, and even beg, Endeavor to keep Aaron on board. Although Endeavor’s Rosen will run the TV department, Kaplan has as much as three and a half years left on an $11 million, five-year contract that’s iron clad. That certainly changes any plan to just send him on his way without cutting a huge check.

There’s been a ton of inside-the-industry conjecture about what the newly merged William Morris/Endeavor agency will be worth once the deal is formally done. Some insiders are saying $300 million. Well, here’s a little perspective: Back in 1995 when Michael Ovitz was negotiating with Edgar Bronfman Jr. for the top job at MCA (now Universal Studios), CAA was valued at $250 million. So what are the biggest agencies worth now, given that factors such as Big Media’s consolidation, lower TV-packaging fees, fewer TV-syndication deals and movies being made, must be measured against receivables?

A very smart guy I know in film-financing circles offers this opinion: “The business world is loathe to give personal-service businesses a value based on a multiple of current year or future years’ cash flows or profits because the future is so speculative. This is, in large part, why talent agencies have had a very hard time figuring out ways to create liquidity for their partners. The reality is that talent agencies (like law or accounting or management firms) are worth the hard assets (office furniture, cash in the bank, real estate owned, etc.), plus the receivables (the commissions to which you are contractually entitled as a rep for the talent or on TV packages, etc.), minus your liabilities (overhead, loans, etc.).”

Next, the new WME has to obtain the approvals needed from the Guild, ATA, and the state and federal governments for the two agencies to legally combine. So that’s still at least 2 1/2 weeks away. What’s a little wait amongst frenemies. ...

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