KCAL parent on block

Low stock price, high debt led to sale

NEW YORK — Young Broadcasting Inc., the parent of Los Angeles independent TV station KCAL, put itself up for sale Monday, having apparently decided it was easier to get out than get bigger.

Young stock skyrocketed $16.31, or 34%, to $63.81 after the company said it had hired Lazard Freres & Co. to “explore potential strategic alternatives … including a merger or sale of the company.”

Wall Street analysts valued Young at roughly $75 a share or about $1.1 billion plus its net debt of $655 million, putting a total value on the company of about $1.7 billion.

Possible bidders

Wall Streeters said possible bidders included fast-growing broadcasters like Hicks Muse Tate & Furst-controlled Lin Television, Sinclair Broadcasting Group or Hearst-Argyle Television, none of which have stations in Los Angeles.

Young’s decision to sell is a turnabout for Young chairman Vincent Young, who has built the company into a 12-station group since its founding in 1986. Just two months ago he was talking about doubling its size through major-market acquisitions.

Aside from KCAL, Young owns six ABC affiliates, four CBS affiliates and one NBC affil.

The company gave little explanation for its decision to sell, saying in a statement that its board “decided to pursue this course of action to investigate all possibilities to maximize long-term shareholder value.” Young execs did not return calls seeking comment.

Young stock had risen from about $35 to just under $50 over the past six months, but it was still trading well below analyst estimates of its value, unlike many other broadcasters, which inhibited Young from using its stock to do acquisitions.

The company’s relatively heavy debt load also prevented it from using debt to fund acquisitions, said Bear Stearns analyst Victor Miller. As a result, Vincent Young was “probably frustrated that he couldn’t participate in the acquisition marketplace,” Miller said.

KCAL on move

Miller noted that KCAL, which accounts for about 35% of Young’s cash flow — earnings before interest, taxes, depreciation and amortization — “is having terrific momentum,” having recently come in second in the L.A. May sweeps in the key demographic category of adults 18-49.

“They’re looking at the world, watching how much other companies are trading for, and they basically said we can’t participate as much as we would like to, let’s face reality … so if you can’t lick ’em, join ’em,” Miller added.

Vincent Young’s family owns 18% of the company’s stock, although it has supervoting stock giving it voting control. The family stands to make $200 million on a sale if the prices reach analyst valuations of $75 a share.

KCAL, acquired by Young from Walt Disney Co. in 1996, is expected to be the drawing card for potential buyers. “If you’re not a network player this is your one and only shot at L.A.,” Miller said.

Since acquiring KCAL, Young has sharply cut its expenses and dramatically improved its ratings as the May sweeps performance highlighted. But overall advertising sales growth has been spotty in recent months, which appears to have hurt the stock price.

None of the companies seen as potential buyers, such as Hicks Muse or Hearst Argyle, would comment Monday. Hearst Argyle is in the processing of acquiring Pulitzer Publishing’s TV station group, which may reduce its interest.