MCA Inc., the giant Hollywood producer of movies and television programs, said yesterday it has agreed to acquire the New York market's WOR-TV, Channel 9, from RKO General Inc. for $387 million.
While television stations generally sell for between 12 and 15 times their annual cash flow, MCA agreed to pay about 26 times 1985 cash flow for the independent station, which is based in New Jersey, Wall Street sources said. MCA Chairman Sidney Sheinberg yesterday called the acquisition of the independent station "a once-in-a-lifetime opportunity, although an expensive one."
The WOR acquisition would be the latest in a series of deals joining major program producers with television station ownership. Other recent mergers of production and station ownership have included Rupert Murdoch's linking of Twentieth Century-Fox Film Corp. with six Metromedia independent television stations, and Ted Turner's proposed merger of his WTBS Superstation with MGM/UA Entertainment Co.
If the transaction is completed, it would be the first station purchase for MCA, a company best known for producing television and box office hits including "Miami Vice," "Magnum P.I.," "Out of Africa" and "Back to the Future."
"We are very pleased we got the station," MCA's Sheinberg said. "There has been no station available in [the New York market] on a stand-alone basis since I don't know when, and there isn't going to be another one for a long time. This is it. We think this is a unique situation, and we think the value will be there."
Sheinberg said one of the elements that makes WOR different from other television stations is its status as a "superstation." Like Turner's WTBS and Tribune Co.'s WGN, WOR is a local independent that is transmitted to millions of viewers across the nation via cable television.
Unlike WTBS, WOR has not profited from this arrangement so far by selling time to national advertisers. Sheinberg said the possibility of capitalizing on WOR's superstation status was one of the factors that MCA considered in deciding to make the acquisition.
Although sources said WOR trails three network affiliates and two independent stations in advertising dollars in the New York market, the station has an increasingly loyal following because it televises New York Mets baseball, New York Knicks basketball and New York Rangers hockey, and because of program upgrading in the last three years, according to Pat Servodidio, president of RKO television.
"In mid-April, we will be moving into one of the most up-to-date, state-of the-art broadcasting facilities in the country, a 100,000-square-foot facility in Secaucus, N.J.," Servodidio said. "It is a showcase for a station operator that is designed to be capble of outside program production. It will have three studios. In the last three years, this station has outpaced the market in revenue growth substantially."
Peter Goodson, the Kidder, Peabody & Co. investment banker who handled the sale for RKO, said he believed all along that the winning bidder would be a major programmer, like MCA, that would have the chance to lower WOR's cost of obtaining programming. He said the superstation status of WOR also contributed to the premium price.
Sources said MCA outbid Westinghouse Broadcasting for WOR. In November, Westinghouse purchased KHJ-TV, a Los Angeles television station, from RKO for $313 million.
Sheinberg said MCA has the right under its agreement with RKO to bring in a partner in its purchase of the station. MCA was bidding jointly for WOR with Cox Broadcasting until Cox withdrew at the last minute, Sheinberg said.
"They withdrew within 15 minutes of the time the final deal was to be agreed on," Sheinberg said. "We had to do some decision-making quick, and so we reserved the option to take on a partner. I don't have the foggiest idea whether or not we will."
"The price looks a little bit high, but I assume that in the age of broadcasting acquisition mania, the only way to get one of these properties is to pay a high price," said Merrill Lynch analyst Harold Vogel. "This is probably a neutral move for MCA. It won't change the nature of the company to any great extent."
One investment banker said the acquistion of WOR was important to MCA because it gives the company a way to distribute new programming in New York. "If they have a national programming hit which they wouldn't have had without access to New York through WOR, this acquisition won't look so expensive," he said.
MCA stock dropped 88 cents to $47.88 on the New York Stock Exchange yesterday, while RKO's parent company, GenCorp. Inc., posted a $1.25 rise to $76.75. GenCorp has said that, once it completes the station sales, it will use the proceeds to repurchase shares.
MCA had revenue of $2.1 billion and net income of $150 million ($2.02 a share) in 1985 versus revenue of $1.7 billion and net income of $95 million ($1.30) the prior year.