The $3.5 billion sale of American Broadcasting Companies Inc. to Capital Cities Communications Inc. was approved by stockholders of both companies today. The transaction will transfer ownership of an established television network for the first time.
Capital Cities Chairman Thomas S. Murphy said his company would soon file for approval of the deal by the Federal Communications Commission, and he expects the acquisition to be completed by Jan. 6.
The merger will create a powerful communications company with more than $4.7 billion in assets and more than $4.3 billion in revenue.
The combined company, to be known as Capital Cities/ABC Inc., will own television stations that give it access to about 25 percent of the nation's viewing audience, more than any other company. In addition to its television and radio networks, ABC owns TV stations in New York, Chicago, Detroit, Los Angeles and San Francisco. Capital Cities owns seven television stations, including ABC affiliates in Philadelphia, Houston, New Haven and Buffalo.
"Capital Cities and ABC complement each other well," said ABC Chairman Leonard H. Goldenson, who presided at his company's stockholders meeting. "Together, we can provide a range of services and a degree of stability which neither company could achieve alone. Together, we will be a strong combination of communications experience and managerial expertise. And this increases the likelihood that the new, combined company will achieve its fullest potential in the years to come."
"This could be called a watershed meeting for Capital Cities," Murphy told his shareholders, who met separately. "We are operators and have always been operators -- we see this as a natural growth of the businesses we are in."
Under terms of the merger agreement, ABC stockholders will receive $118 a share in cash plus one-tenth of a warrant (right) to purchase Capital Cities common stock. Each whole warrant will give the holder the right to purchase one share of Capital Cities common stock at $250 a share for two and a half years after the merger. For 90 days after the merger, warrant holders will have the right to sell the warrants to Capital Cities for a price that will give the transaction an overall value of at least $121 a share for ABC stockholders.
Murphy will be chairman of the combined company; Goldenson will serve in an advisory capacity as chairman of its executive committee. ABC President Frederick S. Pierce will continue to run ABC as chairman of the ABC Inc. subsidiary, while Daniel B. Burke, the current president of Capital Cities, will be president and chief operating officer of the new combined company.
Goldenson said in response to a question that there were no other serious bids submitted for ABC. He has made it clear that he selected Capital Cities as a merger partner. Warren E. Buffett, chairman of Berkshire Hathaway Inc., said when the deal was announced that Capital Cities was the company Goldenson "wanted to marry his daughter to."
The merger will be financed through a combination of bank borrowings, the sale of assets and $517.5 million in capital raised through the sale of about 19 percent of Capital Cities to Berkshire Hathaway. Buffett, who helped negotiate the deal, will be a director of the new company.
Since the merger was announced in March, takeover activity has pushed up the stock prices of other media companies. CBS Inc. has become the target of a hostile takeover bid launched by Atlanta broadcaster Ted Turner. Analysts have speculated that Goldenson, nearing retirment, decided to sell ABC to Capital Cities to keep ABC from becoming the target of an unfriendly acquisition attempt.
To meet FCC restrictions on multiple ownership, Capital Cities/ABC Inc. has announced plans to sell four television stations, 15 radio stations, all of Capital Cities' cable operations and The Red Bank (N.J.) Register newspaper.
Capital Cities has filed for a waiver of FCC rules that would prohibit it from retaining WPVI-TV in Philadelphia and WABC-TV in New York because the stations' signals overlap. The company plans to sell its New Haven, Tampa and Buffalo stations and one ABC station in Detroit. If the waiver is not granted, Capital Cities will retain the ABC station and sell its Philadelphia station.
Ronald J. Doerfler, senior vice president and chief financial officer of Capital Cities, said his company has received about 400 inquiries about each radio and television station property. "I would say last count for the stations, we have averaged 100 offering memorandums for each station," he said.
The Washington Post Co. has confirmed that it has held discussions with Capital Cities about purchasing the cable operations.