The market for station sales has been colder than Juneau in January, but that may soon change with the Young Broadcasting stations on the block. Bids for the 10 stations, which include WKRN Nashville, WBAY Green Bay and the infamous KRON San Francisco, were due July 10, and the winning bidder is scheduled to be selected July 14—with the announcement presumably coming some days later.
The rumor mill has produced a wide range of supposedly interested suitors. But those close to the deal say it has come down to Oak Hill Capital, the bucks behind Local TV LLC, and an equity group known as H.I.G. Capital, which is largely unknown among broadcasters. Others may swoop in right before deadline.
Young aims to sell the group as a whole, and all seem to agree that the timing could not be worse for a big sale. “I think the question is, who’s going to show up, who’s got the money and who’s got the plan to turn the stations around so quickly?” says Mark Toney, Senior VP at media consultancy SmithGeiger. “It’s a tough sell right now.”
If no party’s bid reaches the minimum assigned by Young and financial adviser UBS—a highly possible scenario, many believe—the bank would take over the stations in an equity-for-debt swap, insiders say, with an eye on dealing them in a better economic climate.
July 14 may well come and go without resolution for the Young group, which entered Chapter 11 bankruptcy protection in February. A similar auction was to occur in late June, but Young pushed it back three weeks to accommodate what it said was a flurry of late interest. “The Company wanted to ensure that these new potential investors have the opportunity to review sufficient information to enable them to participate fully in the investment process,” said Chairman Vincent Young in a memo to staffers, “and thereby maximize value for the Company and its lenders and creditors.”
Young Broadcasting would not comment for this story. A spokesperson referred inquiries to the law firm of Sonnenschein Nath & Rosenthal, which also did not comment.
AN ALLEGORY FOR AMBITION
Young’s tale is an apt allegory for ambition and, some believe, unbridled hubris in the modern broadcasting era. The station group famously outbid NBC for KRON in 1999, paying the gaudy sum of $823 million, only to see NBC strip the station of both its affiliation and the majority of its value. KRON exists as a MyNetworkTV affiliate with a large dose of local programming; it’s now valued at between $150 million and $250 million, according to informal estimates from several broadcast veterans.
Often overshadowed by KRON is a decent batch of Young stations in small-to-midsize markets. They include market leaders KELO Sioux Falls, S.D.; KWQC Davenport, Iowa; and KLFY Lafayette, La., along with strong performers like WBAY and WLNS Lansing, Mich. The 10 stations brought in $190 million last year, according to BIA Financial, led by KRON with $41.8 million. But the debt load incurred by KRON has been stifling, and it prompted the auction.
The prospective bidder pool is seriously drained by a confluence of market forces. Private equity was left “holding the bag,” according to one analyst, in acquisitions involving Clear Channel Television and Univision, and will think thrice about major station deals. No one can say exactly where the bottom of the local television market is (see cover story, p. 12), and station valuations have been in free-fall. “The days of double-digit [sales] multiples are long gone,” says another analyst who asked not to be named. “It’s mid- to upper single digits—certainly south of 9.”
Vincent Young believes that interest in the stations is hearty, based on their second-quarter performance and an improved economic outlook in general. “We believe that there will be an active and robust process on July 14 resulting in the improved capital structure the company needs to complete its restructuring and exit Chapter 11 stronger, more competitive and well-positioned to reap the benefits of the rebounding economy,” he wrote in the memo.
Among the possible suitors, Oak Hill Capital would not comment, while Local TV and H.I.G. Capital did not return calls at presstime. Representatives from Hearst and NBC dismissed speculation of their interest. Other rumored kickers of the tires, including Nexstar and Bonten Media, did not return calls.
Starved for a good station deal to dissect, the broadcast community is eager to see how the auction plays out. Says WFRV Green Bay President/General Manager Perry Kidder: “It’s going to be fascinating to watch.”
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