King World

(KWP)

is in play.

Shares in the company, which produces syndicated television shows like

Wheel of Fortune

and

Oprah

, have surged more than 15% in the last two days on published reports that King World is in talks to sell itself to

CBS

(CBS) - Get Report

or

Fox Entertainment

(FOX) - Get Report

. Two prominent media industry analysts stoked the stock further Thursday morning, calling a deal "logical" and "reasonable" and speculating that King World could fetch at least 38, a one-third premium to its current levels.

In midday trading Thursday, King World changed hands at 28 1/4, up 1/2, on heavier-than-usual volume of 330,000 shares. The gain follows a rise of 3 5/16 Wednesday on volume of more than a million shares, King World's heaviest trading day in more than six months.

CBS and Fox declined to comment on a possible deal. King World did not return a call seeking comment. One official at

Sony

(SNE) - Get Report

, also said to be interested, said that company hasn't held any recent talks with King World.

King World could be an attractive target for bigger entertainment companies because it's relatively cheap. Many entertainment conglomerates like CBS trade at 15 times or more their annual cash flow, or earnings before taxes, interest and noncash charges. But King World trades at barely six times its yearly cash flow, factoring out the company's $1 billion cash hoard. As a result, any company that bought King World would almost certainly get an immediate boost to its per-share earnings and cash flow.

Oprah Winfrey: King World's tempestuous trump card

Source: www.oprah.com.

King World gets little respect from investors because it is viewed as heavily dependent on the whims of talk show goddess Oprah Winfrey, who periodically threatens to give up her show, which accounts for more than one-third of the company's annual revenue. Whether real or feigned, Winfrey's hand-wringing has proved a very effective negotiating tactic. King World has steadily reduced the fee it charges Winfrey to distribute the show, and last year, the company agreed to pay her a $150 million advance against the show's 2001 and 2002 revenue. Even so, neither the company nor anyone else knows whether Oprah will stay on the air after 2002, when her current contract expires.

In addition, King World's other mainstays,

Wheel of Fortune

and

Jeopardy!

, are a bit long in the tooth, and the creation of two new networks,

UPN

and the

WB

, has reduced the demand for syndicated shows. As a result, King World's stock has lagged both the broader market and its larger entertainment competitors. Since the beginning of 1994, King World is up less than 50%, and almost half those gains have come in the last two days. By way of comparison, the

S&P 500

has nearly tripled, while

Time Warner

(TWX)

has more than tripled and

Disney

(DIS) - Get Report

has risen close to 150%.

Now some analysts say King World's lagging stock has left it ripe for a takeover bid. "A sale of the company is a logical and likely event,"

Merrill Lynch

analyst Jessica Reif wrote Thursday morning. She cited the company's "history of attracting talent" and persuading stations to pay high fees and agree to long-term contracts for its shows. "In addition, King World brings an incredible balance sheet with no debt, over $1 billion in cash and free cash flow of close to $200 million per annum," she wrote.

In a note Thursday morning,

PaineWebber

analyst Chris Dixon called the takeover talk "reasonable" and added that "merger speculation could result in favor of a valuation ... approaching the low 40s." Neither firm has participated in recent underwriting for King World.