News Corp. TV buy clouds UPN future

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Whether Viacom proves a friend or a foe in the process, News Corp. is determined to close on its proposed $5.4 billion acquisition of Chris-Craft Industries' TV stations and transform them into large-market duopoly outlets for a new programming force.

News Corp. Chairman-CEO Rupert Murdoch called the transaction a major step toward News Corp.'s goal "to be a global communications company that is based on creative content of [its] own." The proposed $85 per share acquisition of Chris-Craft represents $2.13 billion in cash and $3.22 billion in News Corp. stock.

Still, News Corp. and Viacom could wind up partners in the UPN network, which counts eight of the 10 Chris-Craft stations as its affiliates -- a surprising proposal from Mr. Murdoch last week -- or slug it out in a bidding war fueled by the promise of profit windfalls from operating second stations in big markets.

COUNTERBID UNLIKELY

Although Viacom President Mel Karmazin and Chairman Sumner Redstone declined comment on their intentions, executives close to the company say a counterbid is unlikely. Mr. Karmazin angrily withdrew Viacom's offer of $79 a share for Chris-Craft rather than be sucked into an auction that ultimately could have escalated to the $100 per share asking price originally sought by Chris-Craft's controlling Siegel family.

Viacom's announced plans to buy back the 16% of its Infinity Broadcasting unit that it doesn't already own raised eyebrows last week, since the radio and outdoor company brings with it as much as $2 billion in annual cash flow that can be used by Viacom to make acquisitions.

A change in newspaper-TV crossownership would open the floodgates of duopoly acquisitions and swaps among another tier of midsize companies such as Belo, Cox Communications, Gannett Broadcasting and Tribune Broadcasting Co., said Victor Miller, analyst at Bear Stearns.

But Viacom now must also be concerned with finding ways to sustain its wholly owned UPN, which is expected to lose another $150 million this year before breaking even in the next, analysts said.

It must find new major-market stations to offset Chris-Craft's nearly 20% coverage, which will be lost to Fox but is vital to UPN's financial survival.

Having recently forfeited its 50% stake in UPN to Viacom for a mere $5 million, Chris-Craft could soon find itself locked once again in tough negotiations with Viacom. For instance, Viacom could demand Chris-Craft renew its affiliation for at least two years to buffer the loss of the stations to UPN, executives said.

Mr. Murdoch quickly dashed reports that UPN would fold within 18 months and conceded that Fox could not launch a new broadcast network of its own just on the 20% reach of the Chris-Craft stations.

`WON'T WALK AWAY'

"We're not urging CBS to close down UPN," he said. "We'd like to see it developed with us as a participant. We'd like to see the successful development of that sixth network, but it may not be possible. But we won't walk away from it."

Viacom declined comment.

"All things being equal, it's probably better for us and the Chris-Craft stations if [Viacom] can effectively program UPN," said News Corp. President Peter Chernin. "Being a network affiliate is a pretty good deal these days."

Mr. Murdoch talked about the financial upside to programming and controlling two TV stations in key markets such as Los Angeles, where Fox also has two regional sports networks, and in New York, where it also owns the New York Post. He said such duopolies give broadcasters a way to effectively compete with digital cable's expanding spectrum while remaining a solely advertising-supported medium.

Mr. Murdoch said he would consider launching a second full-fledged Fox broadcast network but he would need more than the 20% coverage of U.S. homes provided by the Chris-Craft stations to do it.

News Corp. executives have just begun drafting early scenarios for programming second TV stations in five to 10 large markets with blocks of its own Fox News, Fox Sports, Fox Kids, Twentieth Century Fox films, Fox original and syndicated series, and lots of local elements.

STIFF SCRUTINY

News Corp. could face stiff scrutiny in New York if regulators opt not to extend the company's current crossownership waiver (allowing it to own WNYW-TV and the Post) so it also can keep Chris-Craft's flagship, WWOR-TV.

The additional gain of $1.7 billion in cash from Chris-Craft and the sale of $600 million in non-core TV stations also will bring the sales multiple down to about 10 times cash flow by News Corp.'s fiscal year 2002, Mr. Chernin said.

"Duopoly gives us additional leverage in acquiring syndication product and dealing with advertisers," Mr. Chernin said. "With two markets in places like Los Angeles and New York, everyone will have to go through us."

The Chris-Craft stations will give Fox 16.5% duopoly coverage of U.S. TV homes, none of it attributable to its regulated, capped ownership. Fox would become the largest single TV station group, with 13 stations (including some duopolies) in the top 10 markets and 20 in the top 25 markets.

Ms. Mermigas is editor at large at Electronic Media.

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