Granite Deal in Jeopardy

Feb 20, 2006  •  Post A Comment

The CW Television Network appears to have claimed its first casualty. Granite Broadcasting hinted last week that the pending sale of two WB affiliates to a private-equity buyer might be shelved due to the shutdown of The WB network later this year.

AM Media Holdings, a subsidiary of private-equity firm ACON Investments, has decided not to move forward with a deal reached last September to pay $180 million for KBWB-TV in San Francisco and WDWB-TV in Detroit and is reconsidering whether it wants to buy the stations, according to Granite. The two stations will become independent following the shutdown of The WB.

As part of AM Media’s move, both parties agreed to amend their current agreement to allow Granite to shop the stations to other parties that might be interested in acquiring them.

Such a move will allow the company “to engage in dialogue with other parties interested in acquiring the stations while AM Media continues to evaluate its interest in the transactions in light of the recent announcement by The WB Network that it will cease operations in September 2006,” Granite said in a statement.

Both companies agreed to amendments that enable either to terminate the pending deal at any time.

The WB, along with UPN, are ceasing operations in September to make way for The CW, a broadcast network that is expected to use programming from both The WB and UPN in a bid to create a stronger network that goes after viewers 18 to 34.

While the shutdown of both The WB and UPN lays to rest questions about how long the unprofitable networks could continue to bleed money and to be a drag on stations carrying their programming, the announcement has caused massive ripples in the broadcast industry: Some stations across the country are girding for what could be a bidding war between former UPN and WB stations for the CW affiliation, while others scramble to find programming to fill prime-time blocks that are going to be empty this fall.

But until now much of the impact of the networks’ shutdown has been speculative; AM Media potentially calling off its deal with Granite could serve as the first tangible misfortune to come out of The CW’s creation.

A number of sources said the news of the Granite-AM Media deal unraveling was hardly surprising.

Values in Danger

Though both stations operate in major markets, many people pointed out that once the WB affiliation ended, the stations’ values were likely to take a hit, in large part because neither station has a shot at landing the CW affiliation. In both San Francisco and Detroit, the CW affiliation is going to stations owned by CW co-owner CBS Corp.

“It was immediately apparent that deal was going to fall apart,” one station group executive said. “The prospective buyers are still trying to hang in and figure out possible ways to stay in it, but given the fact the stations are shut out of the CW, what’s the value of that deal?”

For its part, Granite said it is sticking with plans to sell the stations, but is prepared to run them as independents come September.

AM Media’s decision to pull back from its original deal with Granite marks a major setback for Granite, which has struggled for years to sell the stations amid a heavy debt load taken on as the company acquired stations in the 1990s, including the two that were being sold to AM Media. Granite purchased the Detroit station in 1997 for $175 million and acquired the San Francisco station in 1998 for $173.75 million.

The company had hoped a sale of these two major-market stations would make significant progress toward paring down the company’s debt, but as time has gone by the stations’ combined value has declined from what Granite said was a $280 million valuation to the $180 million price agreed upon by AM Media.