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Chris-Craft pact pumps News Corp.

Exex believe $5.35 bil pricetag justified

NEW YORK — News Corp. execs crowed over their broadcast coup Monday, promising that the combination of Fox and Chris-Craft TV stations will create unbeatable duopolies in the biggest markets, major leverage in programming deals and a nice outlet for Twentieth Television syndicated fare.

News Corp. chairman-CEO Rupert Murdoch called the Chris-Craft assets “a scarce commodity in a highly profitable industry” and a ticket to “substantially increased profits for News Corp. and Fox.”

News Corp. execs insisted that Chris-Craft stations have been poorly managed. They expect new-found prosperity under Fox tutelage will quickly counter any strains caused by the hefty pricetag.

But they deferred questions regarding UPN to the net’s owner, Viacom. “I’m not sure I know what will happen to it. That’s a better question for Sumner and Mel,” said News Corp. president and chief operating officer Peter Chernin during a conference call with analysts and investors.

Viacom chairman Sumner Redstone and CEO Mel Karmazin have spent lots of time in Washington, D.C., convincing regulators to let them keep UPN for diversity’s sake, Chernin added. “I suppose they’ll keep it going if they’re true to their word.”

As for Fox, he said, “We have multiple ways to go.”

News Corp. clinched a deal Sunday night to acquire Chris-Craft and two subsidiaries, BHC Communications and United Television, in a cash-and-stock deal worth $5.35 billion. It beat out Viacom, which refused to match News Corp.’s higher offer valuing Chris-Craft at $85 a share.

Wall Streeters berated Viacom on Monday for missing out on a big opportunity, and the company’s shares eased slightly to close at $71.37 as News Corp. and Fox moved higher.

Bear Stearns broadcast analyst Victor Miller called the outcome “a reversal of fortune,” since Viacom could have created six duopolies with accompanying cost savings and muscle, plus strengthening UPN. Instead, he said, Fox will get four duopolies –with five to 10 more anticipated through swaps and sales.

‘An electrifying day’

The News Corp. camp was exuberant. “This is truly an electrifying day for News Corp. and Fox,” Chernin said. “We think this is the right deal for us. It’s at the right price and at the right time.”

Terms call for about $2.13 billion to be paid in cash, the rest in News Corp. American depository receipts, or ADRs — the currency that foreign companies use to trade on U.S. markets. News Corp. is headquartered in Australia.

The overall price includes $1.7 billion in cash now sitting in Chris-Craft coffers that flows back to News Corp. That money, plus an estimated $600 million from station divestitures, will more than cover the cash portion of the deal. The stock portion is made up of 73 million ADRs, representing 292 million preferred shares of News Corp. Company is offering Chris-Craft, BHC and United shareholders a combination of 40% cash and 60% stock.

There’s no breakup fee, which means it wouldn’t cost Chris-Craft a dime to walk off with another bidder if one materialized — not an impossibility, according to some Wall Streeters. The deal will take about nine months to close.

Idea is for News Corp. to basically sell its new station assets to its publicly traded Fox Entertainment unit in exchange for Fox stock, boosting News Corp.’s stake in Fox slightly to just over 85%. Asked why Fox Entertainment didn’t do the deal directly, Chernin said, “It’s what the seller wanted.” In other words, given the choice, Chris-Craft chairman-CEO Herb Siegel opted for shares of News Corp. over shares of Fox.

Duopoly dynamo

Siegel’s station group will give Fox four powerful duopolies right off the bat — in New York, Los Angeles, Salt Lake City and Phoenix. The Salt Lake station will probably have to go, since both stations are in the top four in that market.

New York will face regulatory scrutiny as well, since News Corp. already had to get a waiver to own a newspaper, the New York Post, and a TV station in Gotham. “It’s not clear how they will interpret the existing decision” at the FCC, said chief financial officer David DeVoe. “We have to have a conversation with them.”

Chernin said, “We think there are so many strong media voices in the New York market that we believe this deal is absolutely in the spirit of what the FCC is trying to do.”

The combined station groups will reach 40.6% of the national TV audience, above the current 35% cap. The cap may be raised, but News Corp. is still planning to rejigger the properties as necessary to be in compliance with federal regs. “In some ways, stations are like currencies. We can buy, sell and swap them, creating more duopolies while generating more cash for the company,” Chernin said.

The stations News Corp. does keep will generate higher returns than they ever have, said Mitch Stern, who runs the Fox station group and Twentieth Television. Fox’s Los Angeles station, for example, generates five times more cash flow than Chris-Craft’s. A number of others generate nearly double their Chris-Craft counterparts, he said.

Boosting cash flow

Fox thinks it can boost the $180 million in cash flow that Chris-Craft stations currently throw off to about $300 million, even with divestitures, in their first full year under one roof — in this case, News Corp.’s fiscal 2002.

Twentieth Television, he said, will be able to develop daytime programming for the group, which will have more leverage with outside programmers due to its national footprint and clout in major markets. News Corp. will also be able to leverage its stations with its local sports nets in a number of markets.

“It’s taken us up another notch,” Stern said.

Analysts speculated that News Corp. acquisition could be followed by other consolidation moves among broadcasters — a possibility that could re-energize TV stocks. The group has been sluggish of late due to the high costs of the nation’s digital rollout and uncertainties about its payoffs.

More mergers ahead?

“This suggests there’s a real feeling among broadcasters that the FCC will further ease ownership rules and could mean more activity of the mergers and acquisitions sort,” said David Davis, VP and analyst for L.A. investment firm Houlihan Lokey Howard & Zukin. It’s “going to place added attention on other broadcast stocks.”

Bishop Cheen of First Union Bank in Charlotte, N.C., agreed. “There has been a dearth of such deals this year,” but deal valuations have reflected some underlying strengths in the sector. “This deal was done at over 20 times cash flow,” he calculated. “So, in essence, the buyer is saying, ‘We can double the cash flow.’ ”

Sources pointed particularly at Barry Diller’s USA Broadcasting, the last remaining station group with outlets in both New York and Los Angeles that could be available for a deal. USA may now look even more enticing to groups such as CBS/

Viacom, ABC or Tribune.

Chris-Craft stock certainly perked up Monday, jumping more than 27%, or $17, to close at $79. BHC rose nearly 8% to $153, and United Television was up about 5% to $142.75.

(Carl DiOrio and Michael Schneider in Hollywood contributed to this report.)

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