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Outcome Was Predictable at Channel 51 : Television: Part-owner McKinnon held all the cards in negotiations with financially strapped USIA and ended up with the whole pot.

February 19, 1990|KEVIN BRASS

SAN DIEGO — It seemed almost inevitable that minority partner Michael McKinnon would end up the owner of KUSI-TV (Channel 51).

Years of legal and financial maneuvering preceded last week's announcement that United States International University was selling its 74% interest in the station to McKinnon, who owns 26%. The deal is pending until several conditions are met, including approval by the Federal Communications Commission and the university's review of McKinnon's finances.

Throughout the negotiations, McKinnon was always in the driver's seat--if not in charge, at least in control of the process. The owner of three stations in Texas had nothing to lose. He had time and resources; the university had neither.

With the prize an independent TV station, the final result of the back-room negotiations will have an effect on most San Diegans, considering the station's vast, though as yet unrealized, potential for local programming.

McKinnon says a nightly 10 p.m. newscast is "almost automatic" when he takes over the station. Al Ittleson, a former executive with ABC News, is already in San Diego, working as a partner in the locally based McKinnon Productions, which is developing a variety of news, talk and magazine-style programming.

McKinnon plans to use KUSI as a "test market," a launching pad for local and national shows.

A few years ago, the university, unwilling to sink the station's financial resources into a long-range project, had quashed plans for KUSI to develop a news department. The university's money problems have often meant that short-term financial goals were uppermost in trustees' minds when it came to dealing with the station.

Certainly USIU's need for quick money fueled the pace and intensity of the negotiations to sell the station, just as it originally prompted the university to bring McKinnon into the picture in 1982. After USIU was granted the station's operating license--over a group that included McKinnon's brother, Dan--it needed cash to put the station on the air. Michael McKinnon lent University Television Inc., the subsidiary that technically owns the stations, millions of dollars and leased it equipment. In return, the university, which made a minimal financial investment, signed an agreement that basically handed control of the station to McKinnon.

In addition to a management agreement that paid him more than $100,000 annually, McKinnon was given the right to veto most major decisions and the right of first refusal on any offer to buy the university's shares in the station. In addition, USIU could not use its shares as collateral in any fund-raising scheme until it paid off McKinnon.

The university and McKinnon thought they were entering into a long-term deal that would be mutually rewarding--and the university needed McKinnon's cash, equipment and television experience.

"Let's say there was more trust between the parties at that time," said Ted Vallas, chairman of the university's board of trustees.

With McKinnon holding so many cards, coupled with USIU's financial problems, the university eventually bowed to McKinnon rather than accept a potentially more lucrative deal.

"I gave them a fair market price, 10 times the station's cash flow," McKinnon said.

However, Boston-based ABRY Communications, owner of TV stations in Baltimore and Cincinnati, offered the university more money than McKinnon for its shares in the station. But USIU needed money quickly to meet payroll demands, among other financial commitments.

ABRY's deal reportedly included a $3-million loan up front, but the paper work would have taken up to a week to complete. McKinnon was able to pay the university a $300,000 cash deposit, no strings attached.

"Never has someone gotten so much for so little," said one source close to the negotiations.

Vallas acknowledged that McKinnon's deal was not as lucrative for the university as ABRY's would have been. "But we were looking at time delays" with the latter, he said.

McKinnon says he has agreed to pay the university $9 million up front, in addition to the $300,000 deposit and a $700,000 loan due to be paid this week. He will pay another $7 million in loans and forgive the university's portion of the $6.2 million in debt owed him, as well as $3 million for equipment he owns. The total package, not including interest payments, comes to more than $26 million.

ABRY's package for USIU's shares alone reportedly totaled more than $25 million, plus paying off the money owed McKinnon, for a total package worth more than $30 million.

ABRY's managing director, Andrew Banks, said he didn't know why the university rejected his company's offer.

"It's very difficult to understand," Banks said. He declined to comment further.

Besides the delays in receiving the initial payments, the university reportedly was scared off by the potential of lengthy lawsuits from McKinnon.

A healthy fear of McKinnon has apparently driven many of the university's actions.

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