Multimedia Moves On

Life will never be the same for Multimedia Inc., the syndicator behind talksters Phil Donahue, Sally Jessy Raphael and Jerry Springer. The diversified media company last week put itself up for sale.

Multimedia said Feb. 22 it had hired Wall Street firm Goldman Sachs to “explore strategic alternatives” for the company, such as the sale of the entire group, the spinning off of one or more businesses or a merger with another company.

While some on Wall Street questioned whether the company’s conservative board would ultimately agree to anything as drastic as a complete sale, others insisted that the announcement changed the ballgame permanently for Multimedia.

“There is no turning back now,” said Tim Pettee, a VP with Alliance Capital, which is Multimedia’s biggest shareholder. “You don’t make an announcement saying you’re going to pursue strategic alternatives and then not do anything.”

The announcement sent Multimedia’s price skyrocketing 34% to a high of 39 1/8 before it finally closed Feb. 24 at 38 7/8, its highest level since October 1993. Multimedia shares have been stagnant for five years and the poor market performance was the major factor that prompted the board to put the company up for sale, according to Robert Hamby, Multimedia’s chief financial officer.

The stock price reflected disenchantment among investors with the company’s performance. While the newspapers and broadcast outlets have been doing strongly in the past couple of years, the talkers – which include Rush Limbaugh and Dennis Prager – have hit a wall. The cable systems’ cash flow also has been troubled.

Pettee observed that as a whole the company has been “posting average margins and average returns at best.”

While Pettee says he was happy with the approach taken until recently by new chairman/CEO Donald Sbarra, other institutional investors have wanted the company to restructure for some time, arguing that the management was not deep enough to run so many lines of business.

Hamby said the trend toward consolidation in the media and entertainment industry affected the company’s thinking about its future. He said, “We are a highly diversified media company but we are probably the smallest diversified company in the country.” He said Multimedia wanted to see whether it could swap some assets to build up some of its divisions as well as examining other alternatives like a sale.

Valued at $1.1 bil

The announcement is sure to provoke a flood of inquiries from media companies, analysts said. Companies such as Washington Post Co., E.W. Scripps, Belo, New York Times Co., Tribune Co., Gannett and Cox Enterprises are expected to at least have a look at Multimedia, one banker predicted. An outright purchase is within the reach of most of those companies – at current prices Multimedia is worth $1.1 billion, although MacDonald Grippo Reily president Darice Grippo says the company’s true value is closer to $2.4 billion.

It’s less certain, however, whether any deal will come out of it all. Some Wall Streeters noted that several obstacles exist to a major transaction, particularly the board’s likely resistance to selling Multimedia off piece by piece.

Unfortunately, the most likely buyers would want some of the businesses but not all of them, bankers said. New York Times Co., for instance, which said in December it wanted to expand its TV station business as well as buy into cable programming, could be interested in Multimedia’s newspapers, broadcast and syndication operations but it is unlikely to be keen on buying the cable systems. One banker said several companies would have a similar attitude.

Piecemeal problems

Hamby conceded Feb. 22 that an auction of the company’s pieces “would not be probable… because of the tax problems.” Multimedia would face huge tax bills if it sold its businesses piece by piece because it has owned some of the businesses for a long time.

Bankers said these problems put Multimedia into a similar situation faced by Park Communication, which put itself up for sale last year after its founder died. Park owned a mix of newspapers, radio stations and TV stations, and while there was a lot of interest, the company was ultimately bought by an Alabama pension fund and two private investors.

Multimedia does not even concede that any transaction will eventuate, although at the very least the company is expected to spin off its cable systems, which are worth about $850 million at today’s prices.

One company that may be interested in all the pieces is Cox Enterprises, which owns both TV stations and newspapers. Its newly public subsidiary Cox Communications is a logical buyer of the cable systems, says analyst Grippo.

Some institutional investors are skeptical about whether the board would approve a drastic transaction. Indeed, fund manager Mario Gabelli, a sizable shareholder in Multimedia, scoffed at the Feb. 21 announcement, calling it a “non-event.”

Gabelli said the company was simply trying to get the stock price up. “The stock is selling at 29 and they’re frustrated. It’s worth in the mid-40s,” he said.

Other shareholders took the announcement more seriously. Tom Price, an analyst with money manager Heine Securities, which is also a sizable shareholder, said the announcement was a “very meaningful event,” signaling that the board had made shareholder value a priority.

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