News Corp. Buys Chris-Craft Tv Stations, Beating Viacom

News Corp's Fox TV is adding 10 TV stations to 23 it already owns in $5.35 billion cash and stock (about 18 times cash flow) purchase of Chris-Craft Industries (CC) and its majority owned subsidiaries BHC Communications and United TV. Purchase will increase Fox's penetration of U.S. TV homes to 40.5% -- well above FCC maximum of 35% for single owner -- and Fox officials said they would try to solve that problem by swapping stations to form duopolies rather than selling stations outright.

Agreement on sale of CC stations to News Corp. was reached late Aug 15, Fox officials told security analysts in Aug. 16 conference call, and deal was announced just 2 days after Viacom withdrew from bidding for stations when told CC had received better offer. News Corp. and Fox TV are paying $2.13 billion cash, rest in 73 million American Deposit Receipts (ADRs) representing 292 million News Corp. non-voting preferred shares. If transaction doesn't close by Aug. 31, 2001, CC holders will receive additional $1 per share and if it isn't consummated within 15 months either party may pull out of agreement.

Deal -- which was "the right deal... at the right price at the right time," according to News Corp. Pres. Peter Chernin -- gives Fox TV duopolies in N.Y., L.A., Phoenix and Salt Lake City, 13 stations in top 10 markets and 20 in top 20. Salt Lake City duopoly isn't likely to be retained, Fox officials told analysts, while other duopolies will be sought by swapping stations in larger markets. (Note: Under FCC ownership cap, duopolies count only once against 35% maximum.) Another problem Fox will face at FCC is newspaper crossownership ban since News Corp. owns N.Y. Post, will be adding WWOR-TV, and Fox currently is permitted to own WNYW there under waiver of rule.

News Corp. Chmn. Rupert Murdoch said addition of CC stations gives "News Corp. and Fox TV Stations a scarce commodity in a highly profitable industry... This unique opportunity to increase ratings and revenues through top-market duopolies should quickly deliver substantially increased profits." In addition to 4 duopoly markets, CC stations are in Baltimore, Minneapolis-St. Paul, Orlando, Portland, Ore., San Antonio, San Francisco. Stations include 6 VHFs, 4 UHFs, 8 UPN affiliates, one ABC and one NBC. UPN affiliation contracts expire in Jan., and Fox officials told analysts UPN stations could be expected to seek agreements with different networks -- although probably not Fox, which already has affiliations in all markets involved. That led to speculation that Viacom would shut down its money-losing 2nd network, but Viacom and CBS had no comment. Loss of CC stations would drop UPN penetration to 67% from 87% of U.S. household.

CC and Viacom co-founded UPN TV Network 5 years ago as equal partners and that partnership has been described as stormy from very beginning. Viacom bought out CC last spring for $5 million - - very small percentage of losses co-owners had sustained in operating fledgling network -- in buy-or-sell agreement. In approving Viacom's $30 billion acquisition of CBS, which closed last spring (TVD May 8 p3), FCC began proceeding that would waive 2-network rule to permit Viacom to retain UPN.

In phone conference with analysts, News Corp.-Fox executives repeated several times that CC stations, particularly in N.Y. and L.A., had been "underperforming" in relation to market share and return on sales. Fox, they said, could be expected to turn around those "very low profit" stations very quickly. As for what will happen to UPN, Chernin said: "I'm not sure what will happen... That's a better question for Viacom." As for switch of CC affiliations from UPN, "we have numerous ways to go," analysts were told, with "unmatched distribution platform" created by combination of Fox stations with CC, duopolies and "synergy" from Fox cable sports networks (2 in L.A. area). "Because it's what the seller wanted," was response when analyst asked why purchase was made by News Corp. instead of Fox TV (which will operate CC stations after deal closes).

Deal would give News Corp. "undue influence in major markets," many of which don't have any minority representation, Al Sharpton, head of National Action Network (NAN), charged after meeting with FCC officials Aug. 16. It would be "stretch of FCC regulation" for agency to give News Corp waiver required for acquisition and would go against Commission's responsibility to "protect the public from receiving news from one source," Sharpton said in news conference outside FCC hq. He said deal also was alarming because of what he characterized as News Corp.'s right- wing editorial slant and its exclusionary hiring practices, especially in Salt Lake City and N.Y. where minorities already are under-represented. In Del. Chancery Court, Wilmington, 8 stockholders of BHC Communications, C-C and United TV filed separate suits in effort to stop sale. C-C said suits were "without merit and they intend to contest them vigorously."

Meanwhile, News Corp. said its TV network and stations made strong contribution to its 4th quarter, which showed revenue up 18% to $3.9 billion, with after-tax profit down 14% to $184 million (18 cents per share). TV Group posted operating income of $241 million (up 13%), with profit up 4%. Loss of $53 million was reported by Filmed Entertainment Div., led by poor performance of animated movie Titan A.E.

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