Continuing a wave of broadcast station acquisitions sweeping the industry, Rupert Murdoch's News Corp. agreed to acquire New World Communications Group for more than $2.4 billion in stock, a move that would establish the largest web of television stations owned by a single entity.
For News Corp., whose holdings include Fox Broadcasting, combining the 10 New World stations with the dozen owned by Fox would create a group reaching nearly 40% of all homes in the United States. Assuming the merger is approved by federal regulators, Fox will eclipse CBS-Westinghouse--which reaches about 32% of the United States by virtue of its merger last year--and Tribune Co., which recently paid $1.13 billion for Renaissance Broadcasting, as television's biggest station group. The deal is expected to take about six months to close.
The News Corp. acquisition and other recent consolidation in television and radio ownership have been fueled by the relaxation of Federal Communications Commission rules. With passage of the Telecommunications Act in March, Congress allowed station group size to expand from 25% to 35% of the United States, also eliminating a 12-station ownership limit. (Under FCC rules, the reach of UHF stations, which are higher numbers on the broadcast dial, counts only half, so the combined Fox-New World group comes in just under the 35% cap.) In addition to the stations, all currently Fox affiliates, New World--which is controlled by investor Ronald O. Perelman--is active in television production and distribution. Because Fox is strong in both areas, the acquisition does not bode well for the 300 employees in New World's entertainment division.
The merger claimed one immediate casualty. Brandon Tartikoff, chairman of New World Entertainment, announced his resignation hours after the merger was announced.
"The only thing Murdoch wants is the stations," said one executive. "All the rest of it is baggage that they'll deal with later."
Fox Television Chairman Chase Carey indicated that News Corp. will integrate parts of New World, but he conceded that the real draw is the TV stations--viewed as under-performing assets that Fox can make more profitable through sound management and cost cutting.
"If we just take these stations to the low end of what Fox does [in profit margins], on a three- to four-year basis . . . we'll double the profitability," Carey said.
Previous talks between the companies broke off earlier this year, with Perelman seeking $29 a share and Murdoch offering about $23. Under terms of the deal, News Corp. would pay 1.45 shares of its preferred limited voting stock in exchange for each share of New World common stock. News Corp. already has a 20% stake in New World.
New World shares soared $6.1875 to close at $21.375 on Nasdaq in response to the announcement, while News Corp. dropped $1.375, to $20.625, on the New York Stock Exchange.
Despite that reaction, analysts and executives generally praised long-term benefits of the deal. Harold Vogel, a media analyst with Cowen & Co., noted that the stations provide Murdoch with "critical mass" to distribute programming in a business that's increasingly become "giants competing with giants."
"They paid a lot, but in the full scheme of things, it'll work out," said John Rohrbeck, president of the NBC TV stations group.
The agreement offers a number of intangible pluses in areas such as promotion and programming, since Fox would have complete control over the stations, Carey added. Affiliates are more apt to preempt network fare.
Fox can also cash in with its NFL football contract because a number of New World's stations are in NFL markets.
"On a lot of levels, it enables you to coordinate and push through" such efforts, Carey said.
As for Perelman, the entrepreneur essentially gives up his dream of building his own global television enterprise but cashes out at a huge premium.
"You can take me out too for a billion dollars," Vogel joked.
The agreement scuttles a proposed $1.5-billion New World acquisition of King World Productions, the distributor of such programs as "Wheel of Fortune" and "The Oprah Winfrey Show." Insiders believe that Perelman, who controls New World, was prepared to go through with that deal but also used King World to bring Fox back to the bargaining table after months of on-and-off negotiations.
King World probably remains on the sales block, still a formidable asset but in a climate with fewer potential buyers, analysts say. King World executives couldn't be reached for comment.
Tartikoff, the loquacious former head of NBC Entertainment and Paramount Pictures, joined the company two years ago after New World had secured programming commitments through a major affiliation agreement with Fox. Since that time New World has developed a number of programs but failed to generate any hits.