Baltimore-based Sinclair Broadcasting Group said yesterday it has agreed to buy television stations in Oklahoma City and Lexington, Ky., from an investment group for $63 million.
In doing so, the fast-growing company will position itself as one of the leading independent broadcasting groups in the country and should gain considerable leverage at the bargaining table with Hollywood producers when it buys programming for its stations, industry analysts said.
"It's a very good move. They are building market position and clout. Bigger is better when dealing with Hollywood," said Paul T. Sweeney, a broadcasting industry equity analyst with Wheat First Butcher Singer, a Richmond, Va.-based investment house.
"To me, this deal makes them one of the bellwether television station groups to watch. This easily makes them one of the bigger independent players," Mr. Sweeney said.
The deal is evidence that the company, which had 1995 revenues of $206 million, is taking advantage of the new federal telecommunications bill, which eliminated restrictions on the number of stations that a broadcast group could own. David D. Smith, Sinclair Broadcasting Group's chairman, said the company plans to pay for the acquisition with available cash on ** hand -- more than $100 million. The deal must first be approved by the Federal Communications Commission.
Mr. Smith said that, with the acquisitions, the combined potential viewership of Sinclair's stations will be 9.3 percent of the households in the United States -- or about equal to the potential viewership in New York and San Francisco.
Oklahoma City is the 43rd-largest television market in the country; Lexington is the 68th.
Mr. Smith said it is too early to say whether Sinclair would make any format or personnel changes at the stations. Combined, the stations have about 70 employees.
If the acquisitions are approved, they would bring to 19 the number of television stations the broadcasting company either owns, operates or provides with programming. The chain already includes Channel 45 (WBFF) and Channel 54 (WNUV) in Baltimore.
The stations Sinclair agreed to buy are KOCB in Oklahoma City, a UPN affiliate, and WDKY in Lexington, a Fox affiliate.
"It was a very good deal," said Mr. Smith. "They have good cash flow and we are in a cash-flow-driven business."
According to FCC records, the Lexington station was bought by Pittsburgh, Pa.-based investment group Superior Communications Inc. in 1992 for $10.3 million. The group, headed by PNC Bank, bought the Oklahoma City station in 1993 for $11 million.
Sinclair said it paid 9.5 times KOCB and WDKY's combined broadcast cash flow of $6.6 million. By contrast, said industry analysts, the average price paid for broadcast stations is 11 to 14 times their broadcast cash flow, which is the operating cash flow less program payments and equipment depreciation.
Mr. Smith said he believes that the price Sinclair agreed to pay for the two stations was about $3 million to $5 million below the market value of the operations combined.
Phelps B. Hoyt, a broadcasting debt analyst with Duff & Phelps Fixed Income, said it appears that Sinclair made a good deal and will improve its purchasing leverage on programming. That added leverage should strengthen its margins by holding down programming costs -- a broadcasting company's largest expenditure -- analysts said.
Wall Street investors applauded the deal yesterday driving up publicly owned Sinclair's stock 3 percent. The stock closed at $24 per share, up 75 cents, on trading of more than 150,000 shares.
But Mr. Hoyt warned, "The market hasn't fully appreciated that broadcasting is a cyclical industry that may be facing a revenue downturn in 1997" when advertisers scale back after the 1996 elections and summer Olympics.
"What's a good idea in a good economy, but not be a good idea in a bad economy," Mr. Hoyt said.
Pub Date: 3/06/96