NEW YORK – General Electric’s NBC has emerged as the leading contender to buy control of broadcaster LIN Television from AT&T in a deal likely to cost about $600 million, Wall Streeters say.
Such a deal would plug a big hole in NBC’s owned and operated station lineup. LIN’s most valuable asset is the NBC affiliate in Dallas, the eighth biggest market. Right now NBC has no O&Os between the seventh biggest market and the 16th biggest.
NBC CEO Robert Wright confirmed to Variety in an interview last month that the Peacock web was interested in pursuing LIN if it came on the market. That happened Dec. 9, when AT&T – which owns 45.4% of the company – told LIN’s board it had decided to review its investment and “evaluate alternatives which could result in the disposition” of the shareholding, AT&T said in a filing with the SEC.
LIN owns eight TV stations, including three NBC affiliates in Texas. Its Dallas station, KXAS, accounted for 38% of LIN’s revenue and probably more than half of LIN’s cash flow of $112 million last year, Wall Street analysts estimate.
NBC has been aggressive in acquiring stations since ownership restrictions were relaxed earlier this year, buying two affiliates from New World Communications Group and Outlet Communications (owner of two NBC affiliates).
Not surprisingly, investment bankers and analysts say NBC is the most logical choice to go after LIN, although Dean Witter analyst Alan Kassan said in a report this month that other major broadcasters and a “financial buyer” could be interested as well.
The big question about the deal is price. LIN is currently trading around $42, only a little lower than its year-high of $44.50, although Kassan estimated that LIN could be worth as much as $52-$60 a share.
A more realistic price might be closer to $45, which is roughly 14 times LIN’s 1998 cash flow. NBC paid 14 times future cash flow for the stations it bought from New World, one analyst said, suggesting the company is willing to pay that sort of multiple. At $45 a share, buying AT&T’s stake would cost about $607 million.
Most investors appear to be betting that the price will be about $45 a share. The stock rose to $44.50 the day after AT&T disclosed its plans to evaluate its holding but fell back to the $42 level within a few days, which is where it closed Thursday.
The only other complication in the deal is that NBC is unlikely to want to own LIN’s CBS and ABC affiliates and Wall Streeters suggest LIN could be broken up either before or after NBC bought AT&T’s shareholding.
A possible buyer for the other stations include Clear Channel Communications, which has $1 billion in capital to spend on acquisitions, but analysts say it tends to be more cautious about overpaying.
LIN’s board is clearly expecting the company to get swallowed up. SEC filings show that in early September, the board approved severance agreements for its top execs to “reinforce and encourage” their “undistracted dedication … in the potentially disturbing circumstances of a possible change in control of the company.”
Under the agreements, CEO Gary Chapman and four other senior execs were guaranteed two years’ salary and bonuses as well as acceleration in the exercise date of their stock options in case of termination after the company is sold.
LIN execs could not be reached for comment Thursday.
– Gary Levin contributed to this article