WHAT PRICE KING’S GOLD?

As King World stock continues to climb on speculation that Turner Broadcasting will acquire the syndication giant, industry observers are wondering what the synergies are between the two companies.

TBS’ board gave management the go-ahead June 9 to continue negotiations with King World, suggesting that after several months of talks a deal is getting close. Some on Wall Street question whether TBS’ board, heavily dominated by shareholders Time Warner and TCI, will approve a deal when it is finally completed. But TCI CEO John Malone told a group of money managers last week that the board is supportive of the negotiations, according to an exec at the meeting.

Malone also said that once a deal is done, Turner would turn up the heat in his efforts to buy CBS. King World’s cash reserves of $500 million, $100 million annual cash flow and lack of debt enhances TBS’ strength in making any such acquisition.

Still, going after the Eye web no longer appears to be the sole reason for pursuing King World. Turner himself recently told analysts that CBS chairman Larry Tisch’s refusal to talk to him means that any CBS deal is a long way off.

Instead, Turner apparently feels he can justify buying King World simply for the synergies with TBS’ existing operations and the financial strength it would bring.

On the surface, there would appear to be few areas of mutual support between the cable programming parent of CNN, TBS, TNT, Turner Classic Movies and the Cartoon Network and the syndicator of top-rated game shows “Wheel of Fortune,” “Jeopardy!” and queen of talk “Oprah Winfrey.”

But investment bankers say TBS’ purchase of King World would improve Turner’s distribution in the TV station marketplace.

Turner is currently trying to enhance its broadcast syndication arm Turner Program Services. TPS has two new shows for the fall and winter, a latenight talker with Lauren Hutton and an action hour called “Lazarus Man” with Robert Urich. Bringing in King World’s sales force would instantly give TPS more clout in the syndication market.

The money would come in handy as well. Not only might it help Turner in his pursuit of CBS, it also would be invaluable in his efforts to buy out Time Warner’s stake in TBS. That stake is expected to cost about $1.8 billion.

Tim Pettee, an analyst and money manager with TBS shareholder Alliance Capital, says a takeover of King World also would help Turner increase its share of the TV advertising dollar. “I think that is part of the rationale and I think it’s sound,” he added.

Pettee is a firm supporter of TBS’ interest in King World. Assuming King World can be acquired completely for stock, it would be “tremendously positive,” Pettee reasons, for TBS’ balance sheet and likely improve the company’s credit rating. Pettee notes, “Turner is going to be in the market for capital” in coming years, partly to finance its studio output, so a higher credit rating would ensure capital raising could be done at lower cost.

There are, however, questions about King World’s future. Why, some ask, are King brothers Roger and Michael so eager to sell?

For starters, King World does not own its syndicated hits, “Oprah,” “Wheel of Fortune” and “Jeopardy.” If King World is sold, Winfrey can walk away from talk. If the King brothers leave, then distribution of “Wheel” and “Jeopardy” could go to Columbia TriStar Television, which produces the show with Merv Griffin Enterprises.

Winfrey is tied to King World through the end of the decade, but she has an option to exit following the 1995-96 season. Turner execs are said to want to ink a new deal with Winfrey that would guarantee her staying on the air for the next few years. The Kings are also expected to stay on if the company is sold.

“Oprah” is still No.1, although not nearly as dominant as it once was, with Winfrey trying to take the high road with the talker. The gameshows top all syndicated shows, but tend to skew old in the demographics. King World’s other shows – tabloids “Inside Edition” and “American Journal” and talker “Rolonda Watts” – have not been break-out hits.

While King World’s decision to renew the shows through the end of the decade brought the syndicator a lot of cash, it took away the company’s leverage to launch new shows. Stations no longer have to take a KW show out of fear of losing one of its top shows – at least for the next five years.

On the regulatory front, the phasing out of the financial interest syndication rules that kept the broadcast networks out of the syndication business mean more competition for King World.

The FCC may also relax the primetime access rule, which prohibits the sale of reruns in the hour before primetime (known as prime access) to top 50 market network affiliates. If that rule changes, King World’s ability to launch firstrun shows in prime access on the strongest stations could be limited.

With all that could happen to dramatically change the syndication landscape, it is not surprising that the Kings would look to either cash out or find a bigger home. It also makes determining a value for the company all the more difficult.

The Turner deal would likely be either all stock or a small amount of cash plus stock. While the King brothers might prefer cash for their 22% stake, Wall Street sources say a big tax liability on the sale would force the family to accept stock as a way of deferring the tax bill. King World stock closed at $43, down 25&cents;, on June 16.

Whatever form the payment comes in, bankers say the Kings are sure to want top dollar. “If they’re going to give up control they will want to see a lot of money,” said one.

And that could be where the deal hits a wall. As one banker said, “If you believe that their programming is a little tired and if you wonder what the economics are now because of the new contract with Oprah, you might debate with them what the real forward-looking value is, if you just look at the content side.”

Yet another banker said that a stock-swap deal would hurt the value of existing TBS stock. He predicted that “it would be difficult to get a consensus among board members” in favor of such a deal. Wall Street sources say the board’s support for the talks would likely dissipate past a certain price. But that price has not yet been reached, these sources say, suggesting that rumors of a $50 a share bid might be well-founded.

Then there are the personalities. The Kings and Turner are all outspoken execs. Among words used to describe them are “brilliant” and “crazy.”

“I don’t think (the deal) is crazy. The issue is that the Kings and Turner are crazy,” said one more investment banker. “Maybe they deserve each other.”

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