Emmis Station Sell-Off Is Brisk

Oct 3, 2005  •  Post A Comment

And then there were three.

Emmis Communications moved closer to getting out of the television station business late last week, agreeing to sell four stations to the Blackstone Group and SJL Broadcast Group in a deal valued at $259 million.

The sale leaves Emmis with just three more stations to sell, and though the company has had a relatively easy time obtaining strong multiples for the 13 stations it has sold so far, some believe moving the remaining stations-WVUE-TV in New Orleans, WKCF-TV in Orlando, Fla., and KGMB-TV in Honolulu-could be a bit more tricky.

In the case of one station, the reason is obvious. Fox affiliate WVUE sustained damage from the aftereffects of Hurricane Katrina. The company has since restored the station to full power, but analysts believe it’s possible a sale of the station won’t take place until potential buyers are convinced the New Orleans market is staging a recovery.

“This process has been slowed down because of the effects of Hurricane Katrina,” said Emmis Chairman and CEO Jeffrey Smulyan.

Some analysts are suggesting that the Orlando station, WB affiliate WKCF, could also take some time to sell. Many analysts believe its reputation as Emmis’ most valuable station could lead it to command a premium. What makes it especially valuable is that WKCF is the highest-rated WB affiliate in the country. And it’s located in a state some analysts believe will be a key battleground in upcoming Senate and presidential elections, which means plenty of political advertising.

Exceeding Robust Estimates

Mr. Smulyan would only say that the time spent dealing with the effects of Katrina, along with “other factors,” had slowed the sale process of WKCF. It had nothing to do with the value, he said. He described the company as “far down the road with discussions” but noted there are several questions that need answers before a deal can be finalized. He added that Emmis would not agree to a sale unless the terms “are right for us.”

Last Thursday, Emmis sold CBS affiliate KOIN-TV in Portland, Ore.; Fox affiliate KHON-TV in Honolulu; NBC affiliate KSNW-TV in Wichita, Kan.; and NBC affiliate KSNT-TV in Topeka, Kan. Analysts peg the sale of the four stations at about 14 times cash flow, continuing Emmis’ trend of commanding rich prices for its TV stations.

The deal comes weeks after Emmis struck deals with LIN TV Corp., Journal Communications and Gray Television to sell nine TV stations for a total of $681 million. It is all part of a plan Emmis announced in May to sell its 16 television stations and focus on its core radio business.

Most analysts originally estimated that Emmis could sell its TV properties for a total of around $1.1 billion. However, given the robust prices already paid, the final tally could be well north of that. Indeed, Mr. Smulyan said he expects the final price total to be “several hundred million dollars” ahead of those early estimates.

While a good chunk of the proceeds from the station sales will go toward the company’s radio assets, Emmis appears to also be committing around $100 million to form an Emmis subsidiary that could potentially bid for the Washington Nationals professional baseball team.

Despite Mr. Smulyan’s assurance that any debt incurred by the team would not be borne by Emmis, a move into baseball by the company is already raising eyebrows among some in the investment community. They worry such an investment would be veering too far off course for the company.

Meanwhile, Emmis reported fiscal second-quarter results for the three-month period ended Aug. 31. The company said its profit tumbled nearly 53 percent to $6.2 million from a year-earlier figure of $13.1 million. Revenue rose 11 percent to $107.9 million. The results do not reflect the sale of any stations or costs related to the hurricane. The downturn is a result of lower profits by the radio group and comparisons with the prior year when there was a lot of political advertising.