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Station sales reawakened

Feb 18, 2002  •  Post A Comment

Viacom’s $650 million acquisition of KCAL-TV in Los Angeles isn’t the only news on the long-dormant TV station front signaling an onset of deals and events that will reshape the broadcasting landscape.
There is lots of activity occurring just below the radar.
The piecemeal, large-market-duopoly-driven TV station buys in recent months (including NBC’s acquisition of Granite Broadcasting’s KNTV in San Jose, Calif.) have primarily involved well-funded major players with a multimedia strategy who have been able to slightly bring down lofty TV station price tags.
But there are two other kinds of buyers eager to capitalize on the struggle of broadcast TV stations that have high debt and record-low advertising revenues. These buyers are the solvent mid-size group owners-determined to bulk up in the next wave of deregulation-and financially backed former broadcasters looking to return to the fray.
Mining opportunity
All of these buyers are hoping to make good on a broadcasting industry paralyzed by local stations wrestling not only with their own economic strain but also with ways to change their advertising-dependent business model, achieve competitive scale, cost-effectively mine their local connections and convert to a new digital platform. Every TV station deal in the works or announced is a product of these far-flung and changing industry dynamics.
Consider some of the TV station deal activity going on behind the scenes:
* LIN Television soon is expected to announce it is taking itself public in an initial stock offering that could raise between $400 million and $500 million to pay off nearly half its $1 billion-plus debt, Electronic Media has learned. LIN officials declined comment.
The company, primarily owned by the Dallas-based leveraged-buyout firm of Hicks, Muse, Tate & Furst, is expected to bring the Hicks-owned and LIN-managed Sunrise Television stations into the fold. Hicks, Muse also could increase its stake in the company. LIN hopes to use an established deal currency to secure a stock merger with another broadcast group also seeking scale to survive.
Sources said such potential partners could include Freedom Broadcasting, Nexstar Broadcasting, Granite Broadcasting, Emmis Broadcasting or E.W. Scripps, which discussed an alliance with LIN more than a year ago. Even with what sources said is the backing of major investment bankers such as Deutsche Bank, JPMorgan and Morgan Stanley, the unstable stock market, unsettled TV station economics and LIN’s own towering debt may work against an IPO, despite the company’s well-regarded management.
* Former USA Networks President Barry Baker, now executive VP at Boston Ventures, has been pitching major independent television station groups with a Lehman Bros.-backed plan to merge a handful of companies into a dream team, Electronic Media has learned.
He envisions that a super-size station group of about 100 outlets could immediately take advantage of anticipated ownership deregulation and have the clout to compete with cable and the largest media companies for advertising and programming.
The next supergroup
Mr. Baker, who declined to comment on his plans, is looking to acquire and merge substantial TV station groups at a modest eight times to 10 times stations’ 2001 cash flows. That pricing stance has riled some of the companies with which Mr. Baker has met, including Hearst-Argyle, Scripps, the New York Times Co., Meredith Corp., Belo, Raycom Media and Granite Broadcasting.
Such major broadcast companies, which declined comment on their plans, appear more willing than ever to contemplate a merger or sale at the right price, although all remain ambivalent about relinquishing control. Many that co-own newspaper and broadcast properties simply are waiting for cross-ownership relief later this year before merging and swapping with each other.
But even the most overleveraged broadcaster confided it is determined to sell stations based on what it hopes will be even slightly improved 2002 cash flows. Some smaller broadcasters that are fighting to remain solvent conceded they will go bankrupt before selling low.
* A number of former broadcast group owners or managers are aggressively eyeing a re-entry into the business despite all the hand-wringing about TV stations’ vulnerability to fragmented or slow advertising. They may take a new and different approach to developing multiple digital revenue streams. Industry sources said these potential buyers could include Bert Ellis, David Salzman, Ralph Becker and Jason Elkin, backed by various funding sources and investors.
Such former broadcasters, who declined comment on their plans, could acquire and consolidate mid- to small-size broadcast groups and individual stations.
Pricing pressures
Until then, sporadic TV station sales will continue, testing the marketplace’s patience for pricing. Sources said Tribune Co. could acquire several Granite stations, including its Detroit station. As Young Broadcasting’s recently converted independent KRON-TV in San Francisco begins settling into more humble economics than it knew as an NBC affiliate, buyers seeking a major market duopoly will begin to show interest. Founding Chairman Vincent Young said he believes he can get more than the $800 million-plus he paid for the station several years ago.
All of this activity will be impacted by another important deal catalyst that reared its head last week: the start of what could be an advertising turnaround.
In recent weeks, publicly held broadcast companies have reported dismal fourth-quarter performances, only to cautiously note that their first-quarter advertising pacings have been better than expected. It’s not clear how much of the apparent uptick has been artificially bolstered by Olympics and election spending.
Viacom President and Chief Operating Officer Mel Karmazin picked up the pace of anticipation last week during his company’s earnings call by declaring that Viacom could see its second-quarter scatter up 5 percent to 15 percent over upfront prices. Although much of Viacom’s scatter-market gain has come as a result of massive make-goods at ABC and Fox, Mr. Karmazin clearly is leading the cheer for guarded collective optimism, which also is being reflected in many industry analyst reports.
In fact, what this really means is that the massive falloff in ad spending may have plateaued for the time being. While there are no solid gains to point to, there may not be any worse losses than the ones suffered so far.
That is an important point for broadcasters looking to sell out or merge in the next wave of consolidation that seeks stronger 12 times to 14 times 2002 cash-flow multiples and to re-establish the buy-sell gap that has been a major obstacle to more TV station deals.
The healthy, moderate 12 times first full year cash flow multiple Viacom is paying for KCAL also is a function of two unusual items: a $100 million tax advantage and an estimated $25 million in synergistic cost cuts Viacom says it can achieve with the station it already owned in Los Angeles.
In the end, this is really all about the extent to which the business economics of operating TV duopolies as part of sprawling multiplatform media concerns is redefining the ownership and management of TV stations.
So far, the station sale game is one that only larger media concerns are playing and winning. In fact, a recent BIA industry white paper pointed to how NBC, CBS, ABC and Fox essentially will share the spoils as the biggest beneficiaries of deregulation-inspired consolidation, gobbling up all or part of large station groups such as Gannett, Scripps, Hearst-Argyle, Sinclair, Raycom, Media General and McGraw-Hill.
But there are many smaller, integral broadcasters scurrying around for answers and opportunities before the next consolidation window opens wide. It would be healthy for the industry if more than just of a few of them made it through.