Entertainment giant MCA plunged into the TV station business Tuesday with the announcement that it has agreed to buy WOR-TV in New Jersey for $387 million from Gencorp and its subsidiary, RKO General.
As reported last week by The Times, MCA bid jointly for the station on Friday with Cox Enterprises, a privately held Atlanta media company. The MCA-Cox bid topped one from Westinghouse Electric, according to Wall Street sources.
On Saturday, however, Cox withdrew from the offer, and MCA decided to proceed alone on the condition that it might recruit new partners for the deal.
Gencorp directors approved the transaction Tuesday morning at a board meeting in Palm Beach, Fla., subject to obtaining approval from the Federal Communications Commission for the transfer of the station license.
WOR was regarded as the "last chance" for companies anxious to gain a toehold in one of the top three TV markets of New York, Chicago and Los Angeles. In the last two years, the most attractive independent stations have been snapped up by station group owners such as Westinghouse and Tribune Co.
Such group owners have been moving aggressively up the distribution "pipeline" to produce and distribute their own programming, in part because they protest the high prices commanded by TV program suppliers. MCA, which owns Universal Pictures, is the largest syndicator of TV programs and currently ranks as the top-producing studio of prime-time network TV shows.
The WOR acquisition moves MCA "down the channel of distribution a little further. They can do things with the station in terms of programming and understanding the market," one Wall Street source said, calling the purchase a shrewd move for both offensive and defensive reasons.
As a defensive move, "There is value in keeping the last (major) station from falling into a chain's hands. The chains do exert a lot of buying power," he said. On the offensive, MCA could "take a hot (show) and really manage it" at WOR, demonstrating to other programming buyers the potential of a certain MCA program, he said.
For those reasons, the purchase of WOR may have appeared more compelling to MCA than for Cox, which already owns seven television stations and 12 radio stations in addition to operating one of the nation's largest cable-TV systems.
Industry sources said Cox pulled out of the deal because it did not believe that it had sufficient time to scrutinize WOR's books and other aspects of the deal. In a telephone interview, Cox Chairman and Chief Executive Garner Anthony declined to comment on the specific reason other than to say that "the time frame was a little short."
Anthony also noted that Cox's debt recently climbed to nearly $1.7 billion because its Cox Communications subsidiary was taken private last year after the controlling Cox family offered $1.3 billion for the 59.8% of the company not already owned by Cox Enterprises.
One Wall Street source said MCA is paying 27 times WOR's 1985 cash flow. That would be substantially higher than the multiples paid recently for other stations in major markets. But Sharon Armbrust, an analyst with Paul Kagan Associates in Carmel, noted that station buyers typically peg their price to the cash flow that they expect in the first year of operation under new ownership. Using that measure, she estimated that MCA is paying a multiple of 13 of WOR's likely cash flow in 1987.
"I don't think they're overpaying. I think that's where the market is," Paul Kagan said in a separate interview, noting that he had publicly estimated WOR's sale price at $383 million more than two months ago. Kagan predicted, however, that "the multiple won't go up (in future TV station sales). It's about as high as we can handle for a while."
Some analysts have long regarded MCA as too parsimonious to prevail in a bidding contest, and some have believed that MCA Chairman Lew Wasserman wanted to avoid a regulated industry such as TV station ownership.
Nearly two years ago, however, Wasserman said in an interview with The Times that he would be willing to consider a merger with a broadcaster. In a brief telephone interview Tuesday, Wasserman said his views have not changed.
Wasserman also scoffed at speculation that he went along with the WOR deal to signal his confidence in MCA President and Chief Operating Officer Sidney J. Sheinberg, who put together the bid. Wasserman, 72, called the suggestion "ludicrous," noting that Sheinberg has served as chief operating officer for 13 years. "He runs this company," Wasserman said.
Sheinberg said Tuesday that MCA officials have not decided how they will finance the acquisition. "I don't know whether it's going to be off-balance sheet or on," he said.
For MCA, the deal marks its third acquisition in nine months and involves the largest sum in its 62-year history. Sheinberg noted that it might silence critics who said MCA executives "passed (up) deals that we thought were expensive." One well-placed industry source said Tuesday that MCA recently approached press magnate Rupert Murdoch and 20th Century Fox Film Corp. Chairman Barry Diller to consider selling a stake in the Metromedia stations but was turned down. Sheinberg declined to comment.
BIGGEST SALES OF SINGLE TV STATIONS
Station Year Sold Price Buyer KTLA, Los Angeles 1985 $510 million Tribune Co. WCVB, Boston 1985 $450 million Hearst WOR, New York 1986 $387 million MCA KHJ, Los Angeles 1985 $313 million Westinghouse KTLA, Los Angeles 1982 $245 million Kohlberg, Kravis, Roberts