Market turmoil levels playing field
NEW YORK — Young Broadcasting’s stock collapsed 25% Thursday as the 12-station television group, citing “market conditions,” took itself off the buyer’s market.
Young is believed to have received a joint bid from Emmis Communications Co. and Barry Diller’s USA Networks for KCAL, Young’s flagship station in Los Angeles, at a relatively low price.
But other bidders were conspicuously absent from the two-month auction, including such major acquisitors in recent months as Hearst-Argyle Television and Chancellor Media Corp.
Both Hearst-Argyle and Chancellor reportedly made offers for Young’s far-flung properties before the New York-based company officially put itself on the market June 29 with an announcement that it had retained investment bank Lazard Freres & Co. “to explore potential strategic alternatives.”
The two pre-auction offers may even have led to the formalized bidding process, in that they motivated Young chairman Vincent Young, who dismissed the offers as low, to seek a better price elsewhere.
Young’s stock rocketed from a trading range around $48 to top $70 following the June 29 announcement.
B’cast stocks hit hard
All broadcast stocks have been hit hard since then, although most have fared better than Young’s 51% decline since its high, reached in early July. Young closed Thursday at $34.50 a share.
Emmis’ rejected offer for L.A. indie KCAL reflected the category’s reduced circumstances, reportedly coming in as low as 10 times cash flow, or earnings before interest, taxes, depreciation and amortization. Comparable properties recently on the block have commanded multiples between 15 and 18 times cash flow.
USA eyeing KCAL
Emmis and USA were said to have been mulling a plan to control KCAL under a minority/majority ownership configuration that would allow USA to retain its existing UHF station in Los Angeles, KHSC.
USA has eyed KCAL as an outlet for the “CityVision” local-programming format rolled out on its Miami station in June. KCAL’s strong VHF signal would have been a better vehicle for introducing the “CityVision” concept to the sprawling L.A. market than USA’s existing station, which is currently a 24-hour Home Shopping Network affiliate.
Dearth of bidders
Market turmoil wasn’t the only reason for a reduced field of aggressive bidders, however.
According to Niraj A. Gupta, a media analyst for Schroder & Co., the pace of acquisitions since Young first went on the block left many key players spent before the market meltdown.
The analyst cited such usual suspects as:
- Hearst-Argyle, which announced in late August a $520 million deal to acquire two Sacramento stations;
- Chancellor, which even later in August agreed to pay $930 million in cash for an outdoor advertising company; and
- Sinclair Broadcast Group, the activities of which have, in Gupta’s view, “left its balance sheet pretty full as well.”
Another banker familiar with station-group auctions sensed trouble when Young failed to acknowledge an auction winner within days of its second round. “If there’s a third round,” he said, “it’s just to take care of details before a wrap-up.”
Neither fish nor fowl
But his take extended to the properties themselves. “They’re neither fish nor fowl,” he said, referring to Young’s presence in markets as big as Los Angeles, which accounts for more than 40% of total revenues, and as small as Sioux Falls, S.D., and Davenport, Iowa.
Then, too, the station group is known to value TV assets very highly, having offered $100 million more than the second closest bid for its $387.5 million acquisition of Los Angeles’ KCAL just two years ago.
Hoped for $1.9 billion
Young’s stock stopped trading for nearly two hours Thursday as the company and its investment bank, Lazard Freres & Co., put an end to speculation about a sale that, when presented as a possibility, was expected to fetch as much as $1.9 billion.
Despite “putting off for now the possibility of a sale,” chairman Young nonetheless kept company options open. “Market conditions permitting,” he said, “we may also revisit the possibility of a sale of the company as an alternative.”
(Cynthia Littleton in Los Angeles contributed to this story.)