Newspaper giant Gannett Co. emerged as the surprise winner Monday in the five-month auction of newspaper and television company Multimedia Inc., offering $1.7 billion in cash for a company probably best known for such syndicated talk shows as "Donahue," "Rush Limbaugh: The Television Show," "Sally Jessy Raphael" and "Jerry Springer."
In addition to paying $45.25 for each of Multimedia's 37.87 million shares, Gannett will assume or pay off about $530 million of debt at Greenville, S.C.-based Multimedia. Analysts estimate the total costs for Gannett--including transaction fees and the debt it is assuming--could eventually total $2.4 billion.
Gannett reportedly beat out a group of other interested parties that included Retirement Systems of Alabama, a group that included NBC, and buyout firm Kelso & Co.
The size of Gannett's bid surprised analysts and was clearly at the high end of predictions. Still, some analysts estimated that Multimedia could have fetched more than $2 billion if it had been broken up and sold in pieces.
The most prized assets Gannett gains are five network-affiliated TV stations in St. Louis, Cleveland, Cincinnati, Knoxville and Macon, Ga., as well as two radio stations. Gannett already operates 10 television stations and 11 radio stations. Adding the Multimedia stations will mean Gannett TV stations will reach about 14% of the nation.
In addition, Gannett gains 11 daily and 49 non-daily newspapers, many of them in the fast-growing Southeast. Some of the markets include Asheville, N.C.; Greenville, S.C., and Montgomery, Ala. Gannett already has 82 daily newspapers nationwide, including USA Today.
Gannett is also entering the cable business for the first time with the acquisition of Multimedia, gaining 450,000 subscribers in Oklahoma, North Carolina and Kansas.
The question is whether Gannett, based in Arlington, Va., will stay in either the cable TV or the TV syndication business.
Multimedia's cable operations generated about $53 million in profit last year. But small and mid-sized cable operations are increasingly selling to larger ones such as Time Warner Inc. and Tele-Communications Inc., which are building massive cable "clusters" that can operate more efficiently and that hold more clout on programming and advertising issues than smaller cable concerns.
Analysts estimate the company might get as much as $800 million for Multimedia's cable operations, which could help pay the acquisition costs and reduce debt.
"If Gannett is smart, they will spin off the cable," media analyst John Morton said.
Multimedia's syndication operation could also be sold, some analysts speculated, since it is not one of Gannett's core businesses.
Multimedia's programs, though highly profitable in the past, have been hurt by the huge proliferation of talk shows.
"These are properties that, except for 'Rush Limbaugh,' are sinking in market share. More and more people are taking a bite out of the advertising pool," Morton said.
Gannett's limited experience in the television programming business includes its flashy, short-lived television show based on USA Today and developed in the late 1980s with longtime television executive Grant Tinker.
Another possible candidate for sale is Multimedia Security Service, which monitors more than 76,000 security alarm subscribers.
Plagued by a soft stock price and lagging earnings, Multimedia was put on the block earlier this year. The company's problems stemmed in part from debt it took on in the mid-1980s when it fought off a takeover attempt by businessman Jack Kent Cooke. Multimedia's net profit fell 10% last year to $90 million, with revenue of $630.5 million.
At the time it was put up for sale, Multimedia's stock was languishing at barely more than $20 a share. On Monday, the stock rose 50 cents to $42.25 in Nasdaq trading. Gannett's stock fell 50 cents to $53.25 in New York Stock Exchange trading.
Moody's Investors Service said it is reviewing Gannett's ratings for a possible downgrade. Neil Begley, senior analyst in Moody's media and telecommunications group, said Moody's is especially concerned about Gannett's total debt--already about $800 million--and its debt levels relative to the company's cash flow.
Gannett executives did not comment beyond a company statement. In the statement, Gannett said directors of both companies had approved the deal, which also requires the approval of regulators and Multimedia stockholders.
In addition, the company said, the purchase price may be adjusted if Multimedia's debt exceeds a designated level at the end of the year.
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Gannett Co.'s agreement to acquire Multimedia Inc. for $1.7 billion would give the nation's largest newspaper publisher entry into the cable TV market and rights to popular television talk shows such as "Donahue." A look at the companies:
Gannett Co. * Headquarters: Arlington, Va. * Chief executive: John J. Curley * Major products: Publishes 82 daily newspapers, including USA Today, and 50 non-dailies. It also operates 11 radio and 10 TV stations in 20 major U.S. markets. Holds the largest outdoor advertising company in North America. * 1994 sales: $3.8 billion * 1994 profit: $465.4 million * Earnings per share: $3.23 * Monday stock price: $53.25, down 50 cents
Multimedia Inc. * Headquarters: Greenville, S.C. * Chief executive: Donald D. Sbarra * Major products: Publishes 11 daily and 49 non-daily newspapers, operates cable television systems in five states and owns five television stations and two radio stations. Owns Multimedia Security Services. * 1994 revenue: $630.5 million * 1994 profit: $90.0 million * Earnings per share: $2.35 * Monday stock price: $42.25, up 50 cents
Sources: Bloomberg Business News, Times and wire reports. Researched by JENNIFER OLDHAM / Los Angeles Times