One of the hottest continuing rumors on Wall Street has American Broadcasting Cos. Inc. vulnerable to a takeover, and the gossip intensified today when ABC stock jumped 6 points in unusually active trading, closing at $75 a share, 4 points above its previous all-time high.
Although ABC moved quickly today to quash the notion that top officials there might be behind some of the activity, several brokerage house analysts predicted a major move soon for control of ABC. "There is something going on here," said Richard J. MacDonald of First Boston Corp.
In general, broadcasting stocks are in high favor with analysts these days, a switch from recent years when some analysts were concerned about the erosion of the network television audience to cable and independent stations.
Moreover, the widely held view that once the political clamor dies down something will be done to alter the "7-7-7" rule, which limits broadcasters to owning seven VHF television stations, makes broadcasting stocks even more attractive investments.
What makes ABC particularly appealing is the notion that has become one of the investment community's most popular cliches of recent years: that the company has not yet gotten adequate value from its assets, and that as a result its parts are worth more than the company's whole.
"ABC's stock price does not reflect the inherent value of the broadcast and publishing groups, the real estate or the potential of ESPN Entertainment and Sports Programming Network ," MacDonald wrote recently.
"It is not because investors do not understand the values, simply that management has yet to realize them. We believe that the talk and potential reality of a takeover should alert management to the need for action."
Another analyst, Dennis Leibowitz of Donaldson Lufkin Jenrette, agreed. "ABC is selling at a substantial discount," Leibowitz said.
But if management feels any pressure, there are no apparent indications. ABC Chairman Leonard H. Goldenson is on vacation and the company's chief financial officer, Michael P. Mallardi, returned this week from time off.
In an interview today, Mallardi said the company does not know why its stock has been trading more actively than usual. "We have no knowledge of why the stock is going up other than our performance," Mallardi said, adding that ABC management does not seem particularly concerned about the Wall Street takeover talk.
"There is nothing we think we have to be worried about and we're not spending any great deal of time on it. It is nice to know people think we're attractive," Mallardi said.
Among the rumored ABC purchasers today was Capital Cities Communications Inc., but that company's top management denied it. "We don't own a share of ABC," said Capital Cities Chairman Thomas S. Murphy. "There's absolutely no truth to that."
Another rumor today had Gulf & Western Industries making a bid for ABC, talk called "absolutely untrue" by a Gulf & Western spokesman.
But not everybody who watches the fortunes of ABC thinks the company is up for grabs. "I have no reason to believe ABC is on the block," said John Reidy, an analyst at Drexel Burnham Lambert Inc. "I don't think ABC is any more or less prone to one of the financial entrepreneurs making a move than anybody else."
Reidy agreed cautiously, however, that an "auction" of ABC's assets would certainly bring in more than the company is worth today. "That's true with almost anything in media companies these days," he pointed out.
A lot of the talk about ABC grew from the abrupt firing two weeks ago of ABC Vice President James L. Abernathy, who was bluntly dismissed just after being very visible during ABC's showcase at the Los Angeles Olympics. Abernathy is the target of a sex harassment suit, but ABC officials insist that litigation has nothing to do with the firing.
Such a move is unusual at a company like ABC that prides itself on orderly succession and management stability and loyalty. That very week, too, ABC stock traded unusually heavily. It usually trades at about 80 percent the volume of CBS stock, but that week it traded at more than three times the volume of CBS, the other company considered a network television-dominated investment.
ABC is the most television-oriented of the television stocks, with 90 percent of last year's revenue coming from its network and five company-owned television stations.
Yet its position in television makes a buyout of any kind complex because of the difficulty of transferring television licenses, particularly those in big cities such as New York that inevitably evoke license challenges. On the other hand, some ABC watchers say a buyer could quickly spin the stations into a trusteeship or other arrangement to separate the license problems from the rest of the acquisition.
Although its network and its five television stations have remained strong, despite ratings losses in prime-time and daytime programming, ABC continues to post sharp losses in cable ventures and only recently bought for $202 million the controlling interest in cable's ESPN.
But ESPN has never turned a profit and is unlikely to do so even in 1985. And the company's cable programming unit, ABC Video Enterprises, will lose $56 million to $58 million this year, according to First Boston's MacDonald, before cutting the losses to $19 million to $24 million next year.
Wall Street valuation models, however, show ABC worth far more than its current stock price, with MacDonald valuing ABC's assets at about $153 per share, a high enough model to stir the excitement of potential buyers.