Young Broadcasting said Tuesday it agreed to buy top-ranked KRON-TV from Chronicle Publishing for $823 million in cash and stock, the most money ever paid for a single station.
The announcement wasn’t a duopoly play, but came on the first day that groups seeking two stations in one market were eligible to apply to the FCC under its newly relaxed rules.
Several companies moved fast to guarantee their place in line at the duopoly club. Gannett Co. agreed to buy ABC affiliate WJXX in Jacksonville, Fla., from Albritton Jacksonville Inc. to flank its own NBC affiliate, WTLV-TV, in the same market.
And Granite Broadcasting cut a deal to buy UPN startup WNGS in Buffalo from Unicorn Communications for $23 million. It already owns ABC’s Buffalo affiliate WKBW.
Young stock slumped as chairman-CEO Vincent Young urged investors to consider that No. 1 stations in the top five markets rarely come on the block. And after certain adjustments, he noted, the purchase multiple for the NBC affiliate works out to a modest 10 times estimated 1999 cash flow.
“It’s an extraordinary asset we bought at an attractive price,” he said.
Others, including NBC, badly wanted KRON, too. The threat of the Peacock net pulling affiliation in two years when its contract expires hung like a “dark cloud” over KRON’s talks with other potential buyers, Young execs said, and likely served to keep the price from going even higher.
Chronicle turned down a $700 million bid by NBC.
NBC execs were disappointed by the announcement, but downplayed their previous threats to yank KRON’s affiliation.
“We bid what we thought was a fair price, and Young bid what they thought was a fair price,” an NBC spokeswoman said. “We are treating this like any other standard affiliation agreement that will come up for renewal in two years.”
NBC chief Bob Wright had informed the investment firm handling the KRON sale that the station could lose its affiliation or face other consequences if KRON was sold to any company other than NBC.
But NBC said that letter wasn’t a negotiation tactic. The network will be revisiting its affiliation agreements, as most expire in 2004 and 2005.
Also, as a stipulation to its bid, NBC originally asked for a 30-day exclusive negotiation window to make a play for KRON. The Peacock said it would pull its bid if Chronicle declined. But when Chronicle denied NBC’s request two weeks ago, the net decided to remain in the running anyway.
Meanwhile, in the San Francisco market, rival KTVU vice president and general manager Kevin O’Brien said he was “surprised” with the Young-KRON deal.
“I didn’t think NBC would allow the truly last family-owned VHF in a top-five market go to somebody else,” O’Brien said. “Knowing (Chronicle Publishing Co. prexy and CEO) John Sias, I think he was indignant with the NBC tactics while at the same time looking for the highest price.”
Wall Street punished Young’s stock in sheer disappointment that the company’s big announcement was a purchase, not a sale of Young itself. The company has been on the block both formally and informally for more than a year, but hasn’t been able to find a buyer.
“We expected to see a lot more of you on the golf course than in the TV business, Vincent,” one investor noted during a conference call.
Young said he was as surprised as anyone that his company won the bidding for KRON. But he insisted that nothing has changed, and that his company is still for sale at the right price.
The idea is to create value for shareholders, he said, and the addition of KRON makes Young an even more attractive acquisition prospect. “We paid the telephone bill. So if someone wants to call us with a great offer, we’ll answer the phone,” Young said. “We’ll be exploring all sorts of things, including other purchases that may lead to duopoly in the company’s other markets such as Nashville and Albany.”
KRON will join Young’s stable of 11 stations, including flagship L.A. indie KCAL. Young owns six ABC, three CBS and one other NBC affiliate. Young dismissed speculation that the company might sell KCAL to help fund the KRON deal.
The deal with Chronicle calls for Young to pay $650 million in cash and $173 million in stock. Factoring in tax savings of about $110 million, the acquisition comes to 10 times Young’s estimated 1999 pro forma cash flow of some $71 million.
Young will also acquire Chronicle’s 51% stake in BayTV, a 24-hour cable news partnership with AT&T. The company said it will finance the entire cash portion of the deal with a bank facility. Chronicle is still selling WOWT-TV in Omaha, Neb., and KAKE-TV, Wichita, Kan. The two stations may be unloaded as soon as next week.
As for other duopoly requests, Tribune is expected to file for duopolies in Seattle and New Orleans. Sinclair Broadcast Group will also file.
CBS/Viacom will seek approval for duopolies in Philadelphia, Boston, Dallas, Miami and Pittsburgh. In their filing, the two companies have apparently requested two years to deal with aspects of their proposed merger that might go against current FCC regulations. These include an expanded station group that covers more than 35% of the nation and ownership of two TV networks, CBS and UPN.
Young stock fell 9.2% Tuesday to $47.