Paxson Communications Corp.’s $70.5 million write-off in the latest quarter to devalue its syndicated programming inventory looks a lot like a hasty effort to clean up its books ahead of a likely sale, according to many on Wall Street.
NBC and News Corp. are said to be among the leading suitors for Paxson, whose stock price has been soaring since an Aug. 5 ruling by the FCC made it possible for big broadcasters to own two stations in the same market. The move has ignited a wave of speculation about imminent takeovers of Paxson and other pure-play broadcast groups like Chris-Craft/United TV and Young Broadcasting.
Paxson, which owns 72 TV stations across the U.S., is now a hot commodity, even as its family-oriented Pax TV weblet fights an uphill battle with ratings and ad revenue. Industry sources say some form of merger or alliance deal is likely by year’s end, possibly within the next month or so as the Pax TV weblet’s losses mount.
The $70.5 million write off against second-quarter earnings, Paxson said, reflects a decrease in the value of those programs value due to lower anticipated future usage. Ratings and revenue generated from Pax’s telecasts of vintage syndie fare were far lower than Paxson’s initial projections to Wall Street.
“They’re basically telling a buyer that they’re cleaning the books up,” one Wall Street analyst said. He and others always felt a write-off was inevitable as Paxson’s primetime ratings continued to be soft. Wall Streeters now wonder if the $70 million was everything. “That’s the question. That’s what the buyer will be looking for,” another analyst noted.
The write-off stems mostly from acquisition costs of “Barnaby Jones,” “Highway to Heaven” and “Love Boat” and, to a lesser extent, “Promised Land,” several Wall Streeters said.
Paxson, based in West Palm Beach, Fla., was apparently having telephone problems Tuesday and a spokeswoman wasn’t available to comment.
The company also posted revenue of $58 million and a net loss of $83 million for the second quarter.
Lucrative exit an option
Paxson chairman and CEO Lowell “Bud” Paxson launched PAX TV on his own last year after failing to find a studio partner willing to supply programming to his growing group of UHF stations. Paxson committed tens of millions of dollars for rights to syndicated shows, supplemented by some original programming and insisted he had no plans to sell, despite constant speculation to the contrary.
But if he wants to exit, the FCC ruling certainly gives him a graceful, and potentially highly lucrative, way out. Wall Streeters said Bud Paxson was valuing the company at about $2.8 billion before the FCC ruling, and likely wants more now that the pool of possible bidders has expanded. The market capitalization of the company, based on Tuesday’s closing stock price was $869 million.
The fact that Paxson would probably be willing to sell out completely and step down, which he resisted before, could also make a deal easier, several industry players noted.
While Paxson’s stock has climbed from a low of about $10 in late July, its share closed down $1.75 to $14.69 Tuesday on the weak earnings report.
It’s not yet clear if Paxson can command the price he wants. NBC has been eyeing the company for months. While insiders dismiss the idea, a number of Wall Streeters think NBC may want to use Paxson’s impressive chain of stations to boost distribution of the ValueVision home shopping cabler, in which NBC owns a 40% stake.
NBC has promised to roll ValueVision out on cable systems, but the Peacock may not be able to get as much carriage as it had hoped.
The Paxson stations could also become secondary outlets for all manner of NBC-produced programming, from local newscasts to daytime soaps. An NBC spokeswoman would not comment on rampant speculation about a merger or alliance between the Peacock and Pax.
News Corp., meanwhile, is examining a number of options, including Paxson, Young Broadcasting or just Young’s indie KCAL in Los Angeles, as well as the broadcasting arm of Barry Diller’s USA Networks. Sources said talks with Diller grew complicated, but that nothing is being ruled out. Others think Sinclair Broadcast Group is a more likely buyer of the USA assets.
As for KCAL, News Corp.’s Fox could consider the station as an L.A. outlet for its myriad TV sports rights holdings, most notably the Fox-owned Los Angeles Dodgers.
Chris-Craft/United Television is also seen as a prime takeover targets, thanks to the flurry of buyout and merger rumors sparked by the FCC’s decision to relax the decades-old duopoly rule. There’s talk that one of the groups with a presence in Gotham and L.A. — namely the Big Four O&Os and Tribune Broadcasting — would seek economies of scale in the nation’s richest TV markets by using existing station management to oversee the Chris-Craft outlets or, again, KCAL in Los Angeles.
Viacom, Chris-Craft’s partner in UPN, also has long been rumored as a buyout candidate for Chris-Craft, a scenario that would not involve duopoly concerns.
In another closely watched station sale in the works, the bidding for Chronicle Broadcasting-owned NBC affil KRON San Francisco is heating up following the sale earlier this month of the San Francisco Chronicle newspaper to the Hearst Co.
Georgia-based Raycom Broadcasting and Gannett Co. are said to have fielded offers for KRON, which observers say could fetch as much as $700 million. Fox and NBC were known to have looked at the station in the nation’s fifth-largest TV market, but it’s unclear if either has formally tendered an offer.