Hicks offer said not enough; NBC interested

NEW YORK — Public shareholders in Lin Television Corp. are hoping Hicks, Muse, Tate & Furst’s $1.7 billion bid for the broadcaster turns out to be the opening bid in an auction of the company rather than the final word, Wall Streeters said Wednesday.

NBC leads the field of potential rival bidders, analysts say, because Lin’s prize asset is Dallas station KXAS, which is NBC’s affiliate in Dallas. An NBC spokeswoman declined comment but people close to the Peacock web confirm it has looked at the company.

Fueling speculation about a rival bid is the surprise nature of the deal. While Lin’s biggest shareholder, AT&T, had signaled last December its intention to sell, many on Wall Street believed an auction would not start until next year because of a complex agreement governing how AT&T could sell its holding. Some analysts question whether every potential buyer was canvassed before Lin agreed to sell to Hicks Muse.

At the same time, investors complained about Hicks Muse’s offer, which was below Lin’s market price.

“We think it’s about as low as it could be. We would like a second bidder,” said one portfolio manager at a significant institutional holder in Lin, who asked to remain anonymous. Wall Streeters said several institutional holders had communicated a similar view to Lin, although Lin execs did not return calls seeking comment.

Lin stock, which before the offer was trading at $48.62, closed Wednesday down $1.94 to $46.68, slightly below Hicks Muse’s $47.50 offer. Traders who specialize in takeover situations said that because the offer won’t be completed until next spring at the earliest, the stock would normally trade significantly lower.

The market “is saying that there is a chance of a higher bid,” said one trader.

People close to Lin note that its stock price ran up over the past few months after AT&T indicated its intention to sell.

Wall Streeters say the price is the equivalent of 12 times 1998 cash flow, which is in line with other TV acquisitions, but most concede the price is lower than Lin was expected to fetch.

Hicks Muse faces an unusual problem in the deal. While AT&T has agreed to sell its 45% stake, the telco giant can’t ensure the deal gets done (as a major shareholder usually could) because the offer must be approved by a majority of the outside shareholders.

One portfolio manager said Wednesday he would not vote in favor of the deal as it now stands, even if there were no other offers, because it is a cash deal and he wants stock. Wall Streeters say AT&T is believed to have wanted cash although people close to Lin said the telco never made this an issue in negotiations.

Lin has signed a definitive agreement with Hicks Muse but — as is standard in such deals — Lin’s board has the ability to break the deal if a higher offer is made. Lin would have to pay a $32 million termination fee to Hicks Muse if that occurred, a relatively small breakup fee compared with other acquisitions.

Still, the investors’ unhappiness doesn’t ensure a rival bid will emerge. Analysts say several obstacles stand in the way of a deal.

“There were obviously other people interested in Lin Television because it’s a valuable group of assets,” said Lehman Bros. analyst Tim Wallace. “Whether Hicks’ offer will draw out other suitors is hard to say because there are some complications due to the collection of assets and the potential tax consequences.”

Most of the buyers known to be interested in Lin only want specific assets rather than the whole company. NBC, for instance, is believed to only want the Dallas station. But a buyer of Lin would have to pay big taxes if it sold any of its assets, analysts say.

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