A month after the finale of the successful 10th season, and a year after snarky judge Simon Cowell's departure and the exit of its founders from management, American Idol is up for another shake-up this year: Apollo Global Management, LLC, is taking over ownership for $509 million in cash.

CKX, Inc.'s operations include: (1) 19 Entertainment Limited, which owns proprietary rights to the IDOLS and So You Think You Can Dance television brands, both of which air in the United States, and, together with local adaptations of the format, around the world; (2) an 85% ownership interest in Elvis Presley Enterprises, which owns the rights to the name, image and likeness of Elvis Presley, certain music and other intellectual property created by or related to Elvis Presley and the operations of Graceland and has partnered with Cirque du Soleil for the Viva ELVIS show in Las Vegas, Nevada; and (3) an 80% ownership interest in Muhammad Ali Enterprises, which owns the rights to the name, image and likeness of, as well as certain trademarks and other intellectual property related to Muhammad Ali.

Heavy reliance on IDOL

CKX has a heavy reliance on the IDOLS brand, which accounted for roughly 41% of revenue in 2010. American Idol's ratings over the years have declined due to lackluster winners and departing judges, but Idol continues to be one of the highest rated shows in the U.S. Popular British judge Cowell left after season 9 and singer Paula Abdul left a year earlier. New judges singer Jennifer Lopez and Aerosmith vocalist Steven Tyler, along with original judge Randy Jackson, have managed to keep the show on top in its 10th year, and the show is expected to stay on the air for many more years. Ryan Seacrest is locked in to continue as host of Idol until 2012 pursuant to a $45.0 million contract.

Management shake-up

It's not only the judges' table that underwent a shake-up in the past year.
Simon Fuller founded American Idol in 2002. He sold 19 Entertainment, the company that owns IDOL, to Robert F.X. Sillerman's CKX for 200 million in 2005 but went on to stay as CEO. Fuller resigned as CEO of 19 Entertainment in January 2010 but has stayed on as consultant. As consultant, Fuller receives 10% of the net profits from the IDOLS and So You Think You Can Dance programs. Michael Ferrel, former head of live entertainment provider SFX Entertainment, and president of CKX from May 2005 through November 2008, replaced Fuller as CEO.

In addition, Sillerman in May 2010 resigned as chairman and chief executive of CKX, the company that he founded. He agreed to stay as consultant for one year in exchange for a fee of $1 million. He still owns a 20.6 percent stake in CKX.
CKX has contract with Fox, the network airing the show in the U.S., and FremantleMedia, which produces the show. Fox already has Idol locked up for season 11, but the parties have to negotiate a contract for the years beyond.

Apollo offers 25% premium for shares

Funds management by affiliates of Apollo Global Management are acquiring all outstanding shares of common stock of CKX or $5.50 per common share in cash, representing a 40% premium over CKX's average closing price over the past six months and an approximately 25% premium over the closing price on Monday, May 9, 2011. As of May 5, 2011 there were 92,613,473 shares of common stock outstanding. CKX said Thursday that more than 75.5% of the outstanding shares were tendered in the offering by Apollo. A subsequent offering for remaining shareholders will expire June 20. In connection with the definitive merger agreement reached with CKX, Apollo has also obtained support agreements from two significant stockholders, The Promenade Trust, the sole beneficiary of which is Lisa Marie Presley and which is the Company's partner in Elvis Presley Enterprises, and Robert F.X. Sillerman, the Company's largest stockholder. CKX will become a private company, controlled by an affiliate of Apollo, after completion of the offering.

Apollo Global Management is a private equity firm with more than $67 billion assets under management. As of March 31, 2011, Apollo had $459.8 million of cash and cash equivalents and $751.2 million of debt. Among the most notable companies currently owned by Apollo are Claire's, AMC Entertainment, Caesars Entertainment Corporation, Norwegian Cruise Line, and Realogy.

Michael G. Ferrel, chairman and chief executive officer of CKX, said, in May, "We look forward to working with Apollo, a growth-oriented investor who has a successful history of investing in the media and entertainment sector and one that the Board and management team are confident will serve as a strong steward for the Company's brands going forward. The transaction allows CKx stockholders to realize significant value from their investment in the Company and the Board has determined that the transaction is advisable, fair and in the best interest of the Company's public stockholders."

On Thursday, CKX Entertainment, Inc., the Apollo company that purchased CKX Inc., said it will issue $360 million aggregate principal amount of senior secured notes due 2019 in a private offering. CKX Entertainment intends to use the net proceeds from the offering either to finance the acquisition of CKX Inc. or to refinance indebtedness incurred in connection with the purchase. Standard & Poor's Ratings Services assigned a preliminary issue-level rating of 'B-' to the proposed second-lien senior secured notes, with a preliminary recovery rating of '5', indicating its expectation of modest (10% to 30%) recovery for noteholders in the event of a payment default.

Goldman Sachs Bank USA provided a debt financing commitment in connection with the transaction. Gleacher & Company and Wachtell, Lipton, Rosen & Katz are serving as financial and legal advisor to the Company, respectively. AGM Partners LLC acted as lead financial advisor to Apollo. Other financial advisors to Apollo include Goldman Sachs & Co. and Evolution Media Capital. Legal advisers to Apollo include Paul, Weiss, Rifkind, Wharton & Garrison LLP and O'Melveny & Myers LLP.

"B" corporate credit rating

Standard & Poor's Ratings Services said Friday it assigned a preliminary 'B' corporate credit rating to CKX Inc., which it rates on a consolidated basis with its parent company, CKX Entertainment Inc. The outlook is stable.

The 'B' rating refers to a highly speculative, non-investment grade rating. It is five notches below the lowest investment grade rating.

"Our 'B' preliminary corporate credit rating on CKX incorporates our assumption of stable operating performance at the company's key franchise, American Idol, over at least the next few seasons, but reflects the potential for decline in later years," said Standard & Poor's credit analyst Michael Altberg.

"We believe potential volatility in the domestic television performance of American Idol, and the characteristic long-term decline of such shows, would have negative repercussions on revenue generated from music touring, record sales, merchandizing, artist management, and to a lesser extent, foreign syndication," said Mr. Altberg, noting that these factors are only partly offset by American Idol's current dominance of primetime audience ratings, the company's high EBITDA margin, and some degree of annual revenue visibility due to TV license fees and royalties/licensing revenue from its 85% ownership interest in Elvis Presley Enterprises. The Graceland tourist attraction, while popular, is slated for expansion capital expenditures in2012 and 2013, and involves a risk of return on investment.

The stable rating outlook reflects Standard & Poor's expectation that CKX will maintain adequate liquidity over the intermediate term, despite the potential for modest revenue declines in 2011 owing to lower sponsorship and music touring sales. "We expect steady operating performance from CKX's programming portfolio over the near term," said Mr. Altberg.

CKX had assets valued at US455.6 mililon and debts totaling $175.4 million as of March 31, 2011.

The X Factor

As it has continued to be a ratings juggernaut, American Idol is expected to stay on the airwaves in the years beyond. However, it might be a rough road ahead for IDOL despite the entry of Apollo's and its huge cash pile.

The U.S. version of Simon Cowell's U.K. talent show The X Factor will premier in September this year. Although Cowell's show and American Idol have differences -- they air at different times in the year, and the X Factor is also open to groups and has no upper age limit -- their similarities both off the air and on the air indicate that the shows are competing with each other. The X Factor in the U.S. will be produced by Fremantle, the same company producing American Idol, and will also be aired by FOX. The economic terms of Cowell's Syco Television's contract with FOX and Fremantle could affect 19 Entertainment's bargaining power, and vice versa. American Idol's global record label partner is Universal Music Group while X Factor has a deal with Sony Music Entertainment, which was Idol's record label until 2010. Another thing, The X Factor is another singing competition, when the market is already saturated with talent shows. Former Idol judge Paula Abdul is also joining The X Factor panel.

Even the key sponsors of the two shows are rivals. Pepsi, which missed a huge marketing opportunity when it declined to sponsor American Idol, will be the official sponsor of The X Factor. Its rival, Coca-Cola, has been sponsoring American Idol since the first season.