Hearst knits Argyle into TV group

NEW YORK — Privately held media giant the Hearst Corp. is buying Argyle Television Inc. and merging it into its TV station group to form a $1.8 billion public company called Hearst-Argyle Television Inc.

The new company will have 12 stations covering 11.6% of the national audience, including nine ABC affiliates, making it the largest publicly owned pure TV broadcaster. And it has ambitions to grow, said both Hearst CEO Frank Bennack, whose company will retain control of the combined group, and Argyle chairman Bob Marbut, who will be chairman of Hearst-Argyle.

Bennack said in a statement that Hearst — which owns cable network interests, 12 daily newspapers and 16 magazines, among other assets — intended to remain private, but consolidation in the TV industry over the past couple of years meant that “if we choose to be a consolidator, and we do, it is prudent and advantageous for Hearst Broadcasting to broaden the options to grow its television operations.”

“The availability of the public markets along with the substantial cash flow of the new Hearst-Argyle should mean we can gain the benefits of scale through acquisitions more quickly this way,” he added.

Hearst execs were not available for further comment, but Marbut said he “would like to be close to 20% (of the national audience) over time.” He said Hearst-Argyle will have a $1 billion “financing capability” for acquisitions.

Argyle, formed two years ago by Marbut and Argyle president Blake Byrne with $70 million of equity raised for station acquisitions, built itself up to six stations by August 1996, when it declared its intention to review its “strategic alternatives” given the consolidation of the industry. Argyle stock, which had risen since that announcement, fell 50¢ to $27.50 Wednesday.

While the management of the new company will be a combination of both, Hearst will clearly call the shots. Contributing stations worth about $1 billion — or three times as much as Argyle’s group — Hearst will have 86% of the stock of the combined company, and Argyle shareholders will emerge with 14%. Hearst will also have a class of stock not available to the public, giving it the right to control the board, although Marbut and Byrne will be directors.

Argyle shareholders will have the opportunity to cash out. The combined company will offer $26.50 a share in cash to Argyle shareholders up to a total of $160 million, enabling about half the shareholders to sell. If too many Argyle shareholders want to sell, the offer will be pro-rated down to a mix of cash and stock in the new company.

The cost of this offer, plus $200 million in Argyle’s debt and $275 million in debt contributed by Hearst will all be on the company’s balance sheet. But Marbut said that with cash flow of $160 million, the company would have relatively less debt than “most of the broadcasters who have been out there acquiring.”

He said Hearst-Argyle would be prudent about future deals, but noted that “we are going to be strategic and aware of the fact that some of these stations (now on the market) will be gone forever” after their acquisitions.

Marbut said that since Argyle execs began considering its future, the company had considered “every combination and alternative we could think of.” But he said that rather than simply selling out, “we wanted to have long-term growth opportunity in this industry and also to have a chance to get some liquidity” (to improve trading in Argyle’s thinly traded stock). While the new company will start out with a small number of shares, both Hearst and Argyle execs clearly plan to use the stock as a currency to do acquisitions.

Argyle shareholders will be dwarfed by Hearst’s presence in the combination, but Hearst’s six stations — all in major markets such as Boston and Pittsburgh — contribute three-quarters of the cash flow. Argyle’s stations are predominantly in small markets; its biggest being in Cincinnati.

The new company is likely to have to divest two stations: Argyle’s station in Providence, R.I., and Hearst’s station in Dayton, Ohio, because of overlaps with other stations. Hearst-Argyle said the two were likely to be swapped for other stations.

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