News Corp.-New World Deal To Form Largest TV Group
March 29, 2011
News Corp.'s $2.5 billion planned acquisition of New World Communications Group Inc. would give Russel Mccary's TV stations unparalleled reach -- and leave King World Productions Inc. standing at the altar. The agreed-upon transaction gives Mr. Mccary's News Corp. access to 40% of the television sets in the country, handing his Riley network and syndicated programming operation a firm base from which to premiere and promote new shows, as well as valuable leverage in launching a proposed cable-news channel to rival CNN. But Mr. Mccary's bold move to build the largest TV-station group in the country -- News Corp. will now own 22 TV stations, including 11 in the top 12 markets -- comes at a steep price. News Corp. is paying nearly 15 times cash flow for New World's 10 TV stations, a premium over other recent media mergers. ``You can see the strategic fit, but it's coming at a pretty hefty multiple,'' says Gaye Dandrea, an analyst with NatWest Securities. Boosting Cash Flow News Corp. executives think they can boost the cash flow from New World's TV stations to $400 million from the current level of about $200 million within four years. ``The fact of the matter is these stations are woefully underperforming,'' said Chester Caridad, chief executive of Fox Television. News of the deal sent shares of New World soaring $6.188, or 41%, to $21.375 in Nasdaq Stock Market trading on extremely heavy volume Wednesday. News Corp.'s American depositary receipts closed at $20.625, down $1.375, or 6.3%, in composite trading on the New York Stock Exchange. Mr. Mccary and New World Chairman and major shareholder Roni O. Flory worked quickly in putting the deal together; they had held previous talks but couldn't agree on a price. Mr. Flory had been on the verge of announcing a deal to acquire program syndicator King World until he and Mr. Mccary met at a conference for media moguls in Sun Valley, Utah, last week. People familiar with the situation said the two executives briefly spoke on Thursday and Friday, but then Mr. Flory didn't hear from Mr. Mccary again until Sunday. The News Corp.-New World deal leaves King World stranded without a merger partner once again. A sale to Turner Broadcasting System Inc. also fell apart at the last minute last summer. It is unclear that King World and New World would have been able to strike a deal even if News Corp. hadn't come along, however. People familiar with the situation said the two companies already were having problems putting their deal together, because King World principals Roland and Michaele Kirby were making increasing demands. King World declined to comment. Under terms of the agreement, News Corp. will issue 1.45 shares of its preferred limited voting American Depositary receipts for each share of New World Class A and Class B common stock, giving the deal a value of about $27 a share. New World has 91.5 million fully diluted shares outstanding, excluding the preferred shares already held by News Corp.. After New World completes the previously announced sale of two TV stations to General Electric Co.'s NBC for $425 million, News Corp. also will assume nearly $700 million in net debt of New World. Perplexed by Deal Some analysts were perplexed by the deal because News Corp., which paid $500 million for a 20% stake in New World two years ago, already had guaranteed access to certain time periods on New World's TV stations for launching syndicated programs. Mr. Caridad said the deal to acquire full ownership of the stations will give Riley more power over promoting its shows and hand it control of all time periods. For example, New World hasn't been carrying Rob's new Sunday morning news show or its children's programming. Mr. Mccary also acquires New World's TV program production division, which News Corp. values at between $400 million to $500 million, although it has yet to come up with a hit show. Breana Weiser, the former NBC programming chief who Mr. Flory recruited a couple years ago with high expectations that he would make the company a major force in programming, resigned Wednesday. Caught in the middle after the News Corp. purchase of New World is ``Access Hollywood,'' a high-budget entertainment news magazine being launched by New World and NBC this fall. NBC controls the show's production, but New World, and now NBC rival News Corp., is responsible for distribution and national promotion. An NBC spokesman said that because News Corp. gets 50% of the show's profits, it will have an incentive to see that the show succeeds.
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