A privately held Toronto company disclosed plans late Wednesday to launch a friendly $127-million (Canadian) offer to buy Standard Broadcasting Corp., the parent company of Chatsworth-based Valley Cable TV. At the current exchange rate, the offer is worth about $91.8 million.
But another Toronto company that now controls Standard Broadcasting could be forced to buy back money-losing Valley Cable from the prospective buyer under a conditional agreement between the companies.
Principals in the deal said the proposed transactions would not affect subscribers of Valley Cable.
5.9 Million Shares
The plans made public Wednesday call for Slaight Communications of Toronto to buy all of the approximately 5.9 million shares of Standard Broadcasting for $21.50 (Canadian) a share.
On Wednesday, the Canadian dollar was worth about $0.72.
Hollinger Argus Ltd., which controls Standard Broadcasting through its 49% stake in the media company, has agreed to sell its shares to Slaight Communications provided certain conditions are met.
Under the agreement between Slaight Communications and Hollinger Argus, 90% of Standard Broadcasting's stock must be tendered to Slaight Communications within 35 days of the launching of the tender offer. Furthermore, Slaight Communications must begin its offer by June 14 and receive regulatory approval for the transaction within 120 days from the Canadian Radio, Television and Telecommunications Commission.
The companies did not say why Slaight Communications was granted an option to require Hollinger Argus to buy back Valley Cable, which serves about 55,000 subscribers in the western San Fernando Valley and in the City of San Fernando. Like most young cable ventures, however, Valley Cable has lost money every year since it was founded four years ago.
Peter Searle, a senior vice president for finance and administration with Standard Broadcasting, speculated that Slaight Communications had seen the records of Valley Cable "and wondered whether they want that to be part of what they bought."
Frank McNellis, Valley Cable's general manager, said he expects Slaight Communications to force Hollinger Argus to keep the cable company.
Officials of Standard Broadcasting, who released details of the agreement Wednesday, said the proposed transactions likely would require approval from the Federal Communications Commission and the cities of Los Angeles and San Fernando.
Standard Broadcasting, which also is based in Toronto, lists Valley Cable as its sole major U.S. holding. In Canada, it owns seven radio stations and one television station, and cable television systems serving 45,000 subscribers.
Standard Broadcasting's stock was not traded on the Toronto Stock Exchange Wednesday, fueling rumors of a pending transaction. On Tuesday, the stock jumped $2 1/8 (Canadian) to close at $18 on Tuesday. It hovered around $12 earlier this month.
The company is controlled by two brothers from Toronto, Conrad and Montegu Black of Toronto, through their holdings in Hollinger Argus and related companies. Both brothers are directors of Standard Broadcasting, and Montegu Black is the company's chairman.
The Black brothers are well-known businessmen in Canada with extensive interests in oil and iron ore. Their media company, Standard Broadcasting, which bought Valley Cable last year for $31 million (Canadian), has become unprofitable this year.
During its fiscal year ended Aug. 31, Standard Broadcasting reported earnings of $2.43 million (Canadian) on revenues of $94.4 million. During the six-month period that ended Feb. 28, however, Standard Broadcasting posted a loss of $3.82 million (Canadian) on revenues of $60.43 million.
Searle said the loss stemmed from the high cost of installing cable systems rather than any deterioration in Standard Broadcasting's financial condition.
"It's a very capital-intensive business and it takes time for the subscriber base to grow," Searle said.
Valley Cable, however, has now completed the bulk of its building program in the Valley and is trying to sign up more customers in the area, which it estimates has about 174,000 households. Searle said the company expects improved financial results this year.