Emmis, Sinclair duke it out for USA’s SF group

Smulyan looking to broaden radio co's biz

Seventh-biggest radio group Emmis Broadcasting is aggressively bidding against Sinclair Broadcast Group for USA Network’s SF group of four TV stations, Wall Street sources confirmed Monday. It’s the latest initiative by Emmis to diversify its business away from reliance on radio.

Steering clear of much of the radio consolidation binge in the past few years and resisting pressure to sell the company, Emmis is finding its stable of 14 radio stations vulnerable to competition from other broadcasters, analysts say.

Now, Emmis CEO Jeff Smulyan is under pressure to raise the company’s earnings growth rate, Wall Streeters say.

As a result, Smulyan is working to diversify the company, lately buying a TV license in Hungary, snapping up regional magazines such as Texas Monthly and now focusing on TV station acquisitions.

“We are looking into TV and will continue to,” Smulyan said Monday, while declining to comment about Emmis’ interest in the SF stations.

Wall Street sources confirmed a report that Twentieth Television programming prexy Greg Nathanson will depart Fox to run the stations if Emmis succeeds in buying the SF stations. Neither Nathanson nor USA execs returned calls Monday seeking comment.

Smulyan declined comment but noted that Nathanson “is the largest individual investor in Emmis” and that the two had talked about forming a TV station group “for the past 20 years.” The two have known each other since they were sophomores at USC more than 30 years ago.

Sinclair is the more obvious candidate to buy the SF stations, which are all Fox affiliates, as Sinclair’s existing station group is heavily weighted toward Fox. (Fox owns a 43% stake in SF although it is expected to sell along with USA, which owns 57%.)

But some on Wall Street say Smulyan is so motivated to buy the stations he may outbid Sinclair.

Smulyan’s motivation is partly a response to the poor performance of Emmis stock on Wall Street, where investors have sold out of unhappiness with Emmis’ failure to either buy more radio stations or sell itself to another buyer, Wall Streeters say.

Emmis stock rose 40% in the past year to Monday’s closing price of $47.56, well compared with a 240% increase for top-ranked radio groups such as Chancellor Media (whose stock closed Monday at $47.62).

Still, Smulyan does have supporters on the Street. “He definitely thinks out of the box,” said Lehman Bros. analyst Tim Wallace, adding that Smulyan would likely bring a creative force to TV programming if he bought some stations.

Radio station broker Gary Stevens said Smulyan had “built a very solid, formidable company” since running into financial problems in the early 1990s. Smulyan has been very prudent not to overpay for stations, he noted.

Smulyan emphasized that Emmis’ interest in TV is not a sign it is getting out of radio, but is examining opportunities in broadcast TV — particularly in TV stations that underperform. The SF stations certainly are considered to be in that category: The four-station, middle market group of Fox affiliated stations is estimated to be worth between $350 million and $450 million.

“That’s the hallmark of the company,” Smulyan said. “We started with a handful of turnaround radio stations.”

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