Chris-Craft Deal Buoys Independent TV Station Owners

The TV station business is about to play a swapping game so intense it'll resemble a 1970s-era key party.

News Corp.'s (NWS) $5.35 billion cash-and-stock deal to acquire Chris-Craft Industries (CCN) and its 10 independent TV stations may finally jumpstart the industry's long-awaited consolidation, analysts say.

"I have felt that the Chris-Craft deal was sort of a cog that was holding up more consolidation," says Christopher Ensley, analyst with Lazard Freres. Ensley cites Granite Broadcasting (GBTVK) and Young Broadcasting (YBTVA) as potentially attractive targets. Granite might be tempting for the Tribune (TRB) in that it owns stations in Detroit and San Francisco, which could fill holes for Tribune, a partner with Time Warner (TWX) in the WB network.

Ensley rates Granite a hold. His firm hasn't done any underwriting for the company. He does not have a rating on Young but Lazard advised that company on its acquisition of TV station KRON in San Francisco last year.

Eat In or Take Out?

Other potential takeout targets include Paxson Communications (PAX) and Sinclair Broadcast Group (SBGI).

General Electric's (GE) NBC paid $415 million for a 32% minority stake in Paxson last year and could be a player, though the company would probably have to pay more than the "bargain-basement price" it paid for its initial stake in order to acquire Paxson and its 60-plus stations outright, says Peter Swan, analyst with Pacific Growth Equities. He rates Paxson a strong buy; his firm has not done any underwriting for the company.

Paxson shares rose 7/16, or 3%, to 13 5/8 in late day trading, while Sinclair added 1/4, or 2%, to 12 7/16.

Chris-Craft has been on the block since last fall, when it tapped investment bank Allen & Co. to help it find a buyer. For months, the company was in on-again, off-again negotiations with its partner in the UPN network, Viacom (VIA). Viacom repeatedly balked at Chris-Craft's asking price, and on Friday, Viacom said it had walked away from the negotiating table. Hours later, word leaked that News Corp. had stepped in to snap up Chris-Craft.

Dueling Duopolies

Since last August, when the Federal Communications Commission said it would allow companies to own two stations in the same market -- in industry jargon, duopolies -- many in the industry have been waiting for the big media companies to begin buying up stations in the biggest markets. Under the duopoly rules, owning a second station does not count against the 35% cap limiting the percentage of the national TV audience one company can reach.

Owning multiple stations in bigger markets also gives the networks the ability to spread the costs of local news production, provides cross-promotional opportunities and gives companies like News Corp. an additional outlet for programming produced by its production arms.

While Viacom's deal to buy CBS grew out of talks to swap stations to create duopolies immediately following the FCC's decision, the consolidation many predicted has yet to occur. Until, perhaps, now.

Chris-Craft is in many ways the crown jewel of the independent station owners, mostly because it owns stations in the two largest markets, New York and Los Angeles. Now that it appears to be off the market, lesser but valuable lights might become targets of bigger companies.

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