King World For A Buyer – Or Strategic Alliance

King World Prods., distributor of talk queen “Oprah Winfrey,” is once again looking for a buyer, sources said.

King World is understood to have retained investment bank Goldman Sachs and has met with CBS about the possibility of a deal in the guise of a “strategic alliance.” Sony Corp., NBC and Capital Cities/ABC also will be approached, sources say.

First reports of KW’s search for a buyer, in Friday’s Daily Variety and USA Today, sent KW’s stock price soaring. Late Friday it was trading up 3 1/4 at 39 1/4 on heavy volume.

Whether the talks lead anywhere is an open question, however. Noted one banker, “This company has been for sale for 10 years…. It could be up for sale for the next five years as well.”

A spokesman for King World declined to comment earlier this week. But sources close to the company said brothers Roger and Michael King, who own 22% of King World stock and run the company, have initiated talks with possible buyers from time to time and “that process continues.”

While some industry analysts have put King World’s value at $2 billion, or $50 per share, bankers and industry executives say the firstrun syndication powerhouse is a difficult company to sell. The Kings “are so important to it personally, and if you take them out of the company, it’s clearly less of a company,” one Wall Streeter said.

Another banker said, “It’s a narrow company that has a lot of value tied up in things that they don’t own.”

KW has no ownership interest in its top three syndicated programs – “Wheel of Fortune”, “Jeopardy!” and “Oprah.” “Wheel” and “Jeopardy!” are both produced by Merv Griffin Enterprises, a division of Sony Pictures Entertainment, while “Oprah” is produced by Winfrey’s Harpo Prods.

Also, Winfrey’s contract gives her the right to exit King World in the event of an ownership change. Her contract also has yearly outs if Winfrey tires of talk; however, there is a five-year non-compete clause in her deal if she exits for any reason other than the sale of the company.

KW does own its tab programs “Inside Edition” and “American Journal,” as well as its relatively new talker “Rolonda,” and it has a library of 68 films and 210 TV shows. KW also owns CBS affiliate WIVB Buffalo, which it has been trying to unload.

One risk for KW, and a factor that may be motivating the King bros. to make a sale, is the Federal Communications Commission’s current review of the Prime Time Access Rule. Elimination of the rule, which prohibits the sale of network reruns to top 50 market web affils, could hurt KW because those stations are the bulk of its clients. The syndie has staved off any short-term impact of such a change by writing long-term contracts on “Oprah,” “Wheel of Fortune” and “Jeopardy!”

And while these long-term contracts guarantee the syndication giant a steady flow of high license fees, they also cut down on the syndicator’s leverage in launching new shows. That may be a turnoff for potential buyers. An attraction for a potential buyer is that KW has no debt and $300 million in cash, and it generates about $100 million in free cash flow a year, according to a recent report by Cowen & Co analyst Harold Vogel. Vogel estimated that the company could fetch $2 billion or just over $50 a share, compared with its recent trading price of around $35.

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