Cox Enterprises shook up the broadcasting world Friday, announcing the company will consider offers to acquire its two extremely profitable Fox-affiliated TV stations in the San Francisco-Oakland and Detroit markets.
KTVU, the powerhouse Bay Area indie in the nation’s fifth-largest market that routinely surpasses network affiliates in news, and WKBD in Detroit, a top-ranked UHF indie in the No. 8 market, could be shopped for as much as $ 600 million, or about 11 times the pair’s 1990 cash flow of $ 55 million, according to Bishop Cheen, a senior analyst for Paul Kagan Associates.
The San Francisco station, one of the strongest indies in the country, could be worth as much as $ 500 million alone despite a depressed advertising market in the Bay Area.
That price compares to the $ 510 million Tribune Broadcasting paid for crown jewel KTLA seven years ago when the economy was much healthier, and BHC Communication’s recent $ 310 million buyout of New York indie WWOR-TV, which is based in Secaucus, N.J.
Cox’s move to put the stationson the market was seen as a way of reducing hundreds of millions in long-term debt, which the diverse media company incurred in 1985 when it went private.
“The debt always made them uncomfortable,” said a source close to the company. “It had always been a debt-free company. They looked at this as a way of capitalizing on an opportunity when these two stations are peaking.”
Several potential buyers
Several broadcasting groups are considered to be in the running for the stations, with Fox, Tribune and Paramount heading the potential list of suitors.
Others considered as potential bidders are CBS and Chris-Craft/United-parent BHC Communications, both of which have excess cash on hand.
Cheen said that Fox chairman Rupert Murdoch is probably the only potential bidder who is willing to pay “retail” for the stations. In the mid-1980s, Murdoch paid top dollar to acquire the seven Fox stations from Metromedia as a base to start his fourth network.
Murdoch eyeing SF market
Murdoch has long been known to harbor an interest in acquiring a station in the San Francisco market.
What’s unclear, however, is whether Fox parent News Corp. would be willing to spend heavily on an acquisition when it is actively trying to pare down its $ 7 billion mountain of debt.
Murdoch might be willing to spin off a station in a major market as a means of raising cash. The move would also be necessary to keep Fox within the Federal Communications Commission’s ownership guidelines, which restrict an owner from having stations covering more than 25% of the country.
Fox is currently at 23%. By adding San Francisco, which constitutes 2.4% of U.S. TV households, it would exceed the limit. Murdoch would face major risks by letting KTVU fall into enemy hands. If cash-rich Tribune Broadcasting acquires KTVU, it could decide to drop the station’s affiliation with Fox Broadcasting Co. and force the weblet onto a weak UHF indie in the market–a move that would substantially weaken its national ratings.
Paramount, which has more than $ 1 billion in its coffers, poses problems too. Its station group already owns the Fox affils in Philadelphia and a couple other top markets. By adding the Bay Area station, industry sources suggested that Par would gain so much clout that it might be able to force Fox to hand over a night of programming for its firstrun syndie fare.
CBS could make a bid
CBS could also make a bid. The Larry Tisch-led web, which owns five major market stations covering more than 22% of the country, has been seeking attractive possibilities.
The network is currently affiliated with Westinghouse-owned San Francisco station KPIX-TV.
If CBS acquires just the San Francisco station, it would come within a hair of exceeding the FCC guidelines. Cox’s Detroit station would put it over since it accounts for 1.85% of the country’s TV homes.
Should Cox make Detroit part of the deal, CBS would have to spin off a station.
Detroit, a network source said, is an undervalued market because of the long economic downturn in the Northeast. Still, it has value because it is the center of the automotive industry and all the webs maintain offices there.
BHC Communications is considered among the least likely to make a bid. Its United Television subsid already owns a profitable indie in San Francisco, KBHK, which is a UHF station that appears on most cable systems as Channel 12.
More importantly, the station group is already committed to forming its own ad-hoc syndie network of original programming since its recent acquisition of WWOR.
With the premium price for KTVU based on its value as a Fox affil, it appears unlikely that BHC would be willing to pony up such a large amount and then drop the station’s affiliation with the weblet.
NBC and Disney are considered extreme longshots.
With five O&Os covering more than 21% of the country and a minority interest in a sixth station, NBC could be a bidder in San Francisco. But the web is already rumored to be on the auction block and many consider such a move unlikely.
As for KCAL-TV-owner Disney, it would fail to gain much of a strategic advantage through a sale without having a station in New York.
A deal between WWOR’s former owner Pinelands and Disney collapsed earlier this year when BHC stepped in with its bid.
The decision to put the two Cox stations on the market caught company employees by surprise Friday.
In an announcement, Cox Enterprises chairman-CEO James Kennedy said the company has “continued to receive unsolicited inquiries from potential purchasers of KTVU and WKBD” over the past couple years.
Cox asked the investment banking firm Morgan Stanley & Co. to determine their market value and handle any potential transaction.
Kennedy emphasized that Cox would withdraw the stations from the market “should the offers not meet our high expectations. … We’re proud of both stations and have no overwhelming desire to sell them.”