Chris-Craft Industries Inc. has agreed to sell its 50% stake in UPN to its partner, Viacom Inc. for a nominal $5 million, ending speculation that Barry Diller's USA Networks Inc. might make a run for the money-losing broadcast network.
The sale improves UPN's chances of survival by simplifying its ownership. UPN, hamstrung by dueling owners, has struggled to attract an audience with shows as "Star Trek Voyager" and "Moesha." It finally gained some traction this season with the addition of World Wrestling Federation's "Smackdown."
Despite Diller's long-standing interest in owning a broadcast network, sources say the media mogul balked at teaming up with Chris-Craft controlling shareholder Herbert Siegel, who has a long history of soured partnerships. The aborted talks could hamper USA's chances to beat out Viacom for the rights to World Wrestling Federation programming. Diller needs a broadcast outlet--such as UPN--to match Viacom's proposal, which proposes putting the wrestling programming on both broadcast and cable.
Chris-Craft's sale, which could be completed as early as this month, will give Viacom two broadcast networks, putting it in violation of federal rules that prevent such dual ownership. As a result, the Federal Communications Commission could order Viacom to sell UPN as a condition of approving Viacom's proposed $48.6-billion takeover of CBS Corp., which is expected to be completed next month.
In defending its ownership of two networks, Viacom has argued in Washington that UPN might disappear without its continued ownership. Together, the partners have invested more than $800 million in UPN since the 1995 launch, and Viacom claims that no one would buy the money-losing network. Chris-Craft's unwillingness to take control of UPN for the modest price of $5 million supports Viacom's claim. In February, Viacom triggered a so-called buy-sell provision of the UPN partnership agreement, giving Chris-Craft 45 days to decide whether to sell out to Viacom for $5 million or buy its partners' 50% share for the same amount.
Chris Craft's BHC Communications subsidiary, which owns the 50% interest in UPN and 10 TV stations, responded by filing a lawsuit against Viacom and CBS, claiming that their merger violated a network exclusivity provision of the UPN partnership agreement. A New York state judge dismissed the lawsuit last Thursday, refusing to either block the merger or invalidate the buy-sell provision.
Chris-Craft had until Monday to decide whether to buy or sell its UPN stake.
The company for months has held discussions with assorted media companies, including Diller's USA Networks, about selling its broadcasting properties entirely or becoming its new partner in running UPN. But sources say Chris-Craft, although eager to secure programming for its eight UPN affiliates, was ultimately unwilling to and uncomfortable with shouldering the ongoing losses of the network.
Viacom and Chris-Craft sparred over UPN nearly from the start, with their financial, management and creative differences slowing development of the network.
UPN could benefit from singular ownership, after a rocky partnership that has resulted in management turmoil and unclear direction. "While we were disappointed with the court's decision, we believe that UPN and our shareholders will now best be served by ending any further uncertainty through our sale to Viacom," William D. Siegel, BHC's president, said in a statement.
BHC's eight UPN stations remain affiliates of the network, although their contracts expire in January. Sources close to Chris-Craft say that Siegel will likely threaten to pull those stations, which air UPN in the nation's largest cities, to gain the upper-hand in negotiations.
Chris-Craft shares fell 56 cents on Monday to close at $65.69 on the New York Stock Exchange. Analysts say Siegel's broadcast properties could be worth more to another buyer without the burden of UPN. Viacom Class A shares closed down 63 cents to 55.88 on the NYSE.