Dow Jones, Group W Nail FNN

Troubled Financial News Network is dismantling itself. But the prices it’s receiving for its operations appear lower than many industry sources expected.

Dow Jones & Co. and Westinghouse Broadcasting announced last week that they have agreed in principle to acquire FNN’s media operations. While financial terms of the agreement were not disclosed, FNN co-chief execs Alan Hirschfield and Allan Tessler said in a statement that the sale price is lower than the total liabilities of FNN.

Additionally, management anticipates that the proceeds from the sale of other assets, including a 51% interest (with parent company Infotechnolgy) in the Learning Channel – which it sold last week to the Discovery Channel for $12.75 million – as well as its Market Data Service trading and quote systems unit, will not make up the shortfall.

Management would not disclose the amount of total liabilities, but previous reports indicate that FNN has at least $54 million of bank liabilities and $88 million of leasing liabilities. Sources said the price could be around $100 million.

Further, it was noted by FNN that a final sales agreement may hinge on possible future Chapter 11 bankruptcy proceedings for the company. Some industry sources believe that Hirschfield and Tessler are using the prospect of lengthy Chapter 11 proceedings as a means of goosing a higher bid out of Dow Jones and Westinghouse or a rival bidder.

“If they accept this bid, they are going to end up giving the shareholders zero,” says analyst Arthur Strachman, president of Hy Strachman & Associates. “FNN’s basically saying if you want us to accept this bid, we’re not going to have any assets after paying off our liabilities.”

Strachman adds: “They’re telling everybody that they are going Chapter 11 if they don’t get what they consider a correct bid; something in the $150 million range.”

If a higher offer is received by FNN, the company will have to review it or open itself up to shareholder suits.

Hirschfield and Tessler could not be reached for comment and a spokeswoman for FNN did not return calls.

If the company does go into Chapter 11, a court may award a portion of the proceeds of a sale to shareholders, in which case the company’s bank lenders and creditors would share in the loss.

However, a source involved with the bidding said there were several assurances made to Westinghouse and Dow that they would be able to weather any challenges. Moreover, the deal calls for a management agreement with FNN’s current staff, and the bidding process was extensive – making it difficult, per a source, to override the Dow/Westinghouse bid.

More important, it would take a shareholder with enough money to fight an extensive court battle in order to overturn the Westinghouse/Dow deal.

“We have agreed on a price,” said FNN prexy Michael Wheeler, adding that any other bids would be reported to the board.

Still pending are definitive contracts, FNN board approval and Hart-Scott-Rodino clearance. In addition, FNN and the partnership of Dow Jones/Westinghouse have inked a management agreement which will be effective until the deal closes.

Sale of the network would bring to a close some of the most creative and aggressive bidding the cable industry has seen. “The bidding process was very spirited,” said Errol Cook, managing director of Wertheim Schroder & Co., which managed the auction.

Prior to its connection with Westinghouse, Dow Jones had been partnered with Paramount and MCA. According to a source, MCA did not think FNN was a good buy and urged Paramount to step out of the venture.

General Electric – which owns the Consumer News & Business Channel via its venture with Cablevision Systems – also wanted a piece of the network, but may have let FNN slip through its fingers by seeking extensions to the bidding process and under estimating the competition, according to a source.

Concerning the possibility of making another bid a CNBC executive would only say that the company was “evaluating our options but we are not going to comment on the transaction.”

Under the Dow/Westinghouse partnership, Dow Jones will oversee the editorial side of the business while Westinghouse’s Group W Satellite Communications wing will oversee affiliate relations, public relations, marketing and advertising sales.

In a separate transaction, FNN and Infotechnology sold their 51% stake in the the Learning Channel to the Discovery Channel for $12.75 million – considered a discount many analysts.

Discovery has also signed agreements to acquire the remaining portion of the network from the non-profit American Community Service Network and the management and employees of TLC.

Discovery is said to have paid around $30 million for all of TLC, though a company spokesman declined to comment on the financial terms. Early on in FNN/Infotech’s quest to dump the network, analysts had valued the network at between $60 million and $80 million.

A spokesman for Discovery said definitive contracts would be signed shortly, with the deal closed April.

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