Generally speaking, CBS topper Mel Karmazin is not known as a touchy-feely kind of guy.
But last Thursday, as Karmazin announced CBS’ $2.5 billion deal to acquire King World Prods. during a conference call with reporters, the Eye web’s hard-charging prexy and CEO let loose with a display of affection toward his newest employee, King World chairman Roger King.
“We’re hugging,” Karmazin declared during the teleconference sesh that begged for video illustration.
Karmazin was over the moon because CBS had sealed an agreement for a stock swap deal that promises to add another $200 million to CBS’ annual earnings. Better still, the distrib of syndie stalwarts “Wheel of Fortune,” “Jeopardy!” and “Oprah Winfrey” boasts a debt-free balance sheet and nearly $1 billion in cash reserves.
The deal brings King World’s programming strength together with CBS’ network and TV station assets, creating a formidable platform for launching syndie prospects and fueling King World’s expansion into telefilms and kidvid, among other areas.
“In the syndication business, there is none better than King World. This is a huge deal for us in terms of free cash flow,” Karmazin said.
The 14 CBS O&Os have already had success with King World’s revival of “Hollywood Squares,” although its other franchises are tied up in long-term deals with other station groups. Karmazin, however, is clearly looking at the long-term value of the deal, despite the threat that Winfrey, King World’s primary cash cow, may be ready to hang up her mike in 2002.
The stock swap, approved by the CBS and King World boards, calls for CBS to issue 0.81 shares for each King World share, valuing King World at about $33 per share, based on CBS’ closing price Friday of $40.13. King World shares closed up 56¢ Friday to $31.13, after soaring more than 30% over the past two weeks on rumors of an impending deal.
Fit for a King
“This is a terrific marriage,” said vice chairman Michael King. “We’re getting assets we couldn’t buy today. That’s why we wanted stock (for the deal). We’re investing in all the unbelievable investments that Mel has made.”
The biggest surprise from Thursday’s announcement was that King World would remain a stand-alone division within the Eye family. That plan raised questions about redundancies with CBS’ existing Eyemark Entertainment syndie arm.
Karmazin maintained that there were benefits to having two competing shops. Maintaining some independence for King World was a key deal point for the Kings, who will report not to Karmazin but to Les Moonves, prexy/CEO of CBS Television.
Moreover, it was essential that Roger King remain at the helm of the company — Winfrey would otherwise have the right to end her long-running distribution deal with King World. Columbia TriStar TV, which produces “Wheel” and “Jeopardy!,” had a similar key-man recapture clause in its distribution pact.
“The key ingredient here is that we become Switzerland to the broadcast community,” said Roger King in illustrating how King World will maintain a measure of autonomy in decision-making.
“And I’m the Swiss banker,” Karmazin quipped. He noted that CBS has resisted the trend toward streamlined management in the radio business, because he’s a firm believer that competition in a sales-oriented business generates the strongest results.
However, Karmazin and Moonves acknowledged that some administrative functions of King World and Eyemark may eventually be merged to save overhead costs.
Karmazin promised that CBS would use King World’s cash horde to invest in more radio and TV stations, outdoor advertising as well as Internet and new media outfits.
Cross media empire
The valuable barter ad time that King World controls in the highly rated “Wheel,” “Jeopardy!” and “Oprah” will be incorporated into CBS’ cross-media ad sales unit, which offers one-stop shopping packages to big-spending advertisers looking to place TV, radio, Internet and outdoor buys.
Karmazin hinted that King World’s barter time would also be offered as a swap for equity in Internet and new media companies that are becoming voracious buyers of TV advertising. CBS News already has a similar cross-promotional agreement with America Online.
“There are a bunch of initiatives CBS has under way that will become more apparent in the future about how King World assets fit into any CBS.com plans,” Karmazin said.
The union of King World and CBS marks the end of an era in the syndication business, which has been rocked along with the rest of the TV biz by mergers and acquisitions in the 1990s.
Over the past 15 years, the King brothers have earned a reputation as scrappy but savvy entrepreneurs. They took the small TV distrib, founded in 1964 by their father, Charles King, into the big leagues in the 1980s through fortuitous pacts with “Wheel” and “Jeopardy!” creator Merv Griffin and talkshow queen Winfrey.
But the TV landscape has changed, and King World increasingly found itself at a disadvantage compared to vertically integrated companies.
“If you’re going to succeed and be competitive in today’s marketplace, you cannot stand alone,” Michael King said.
“When you when build a company from an acorn to a giant, you never want to see it go to just a certain point,” Roger King added. “I wanted it to go higher. This is not King World’s demise today. This is King World’s rebirth.”