Lofty tab expected for KCAL-TV station.

Disney may get more than $300 million for outlet

Broadcasting industry analysts expect a bidding war for Hollywood-based KCAL-TV Channel 9 that could push the sale price of the station, soon to be divested by Wait Disney Co., well over $300 million.

Disney's ownership of KCAL was the only major roadblock to regulatory approval for Disney's acquisition of New York-based Capital Cities/ABC Inc., because it is illegal to own more than one VHF station in a single market (Capital Cities is the owner of KABC-TV Channel 7 based in Los Angeles). The U.S. Department of Justice gave its official nod to the buyout last week after Disney officials agreed to drop their attempts to keep KCAL.

The only thing now holding up the $19 billion acquisition of Capital Cities is approval from the Federal Communications Commission, believed to be little more than a formality.

KCAL is one of seven VHF stations in the Los Angeles market. It is considered an attractive acquisition target both because L.A. is the second biggest television market in the U.S. and because proposed reform of telecommunications regulation is inflating the value of TV stations.

Stakes increase

Until last year, television stations tended to sell for eight to 10 times their annual cash flow, according to Steve Saltman, principal of Agoura-based television distribution consulting firm Saltman Telecommunications Associates. But a several sales in 1995 showed dramatic divergence from this trend.

In September, Chicago-based Tribune Broadcasting Co. paid $70.5 million for UHF station KTTY-TV in San Diego at a bankruptcy auction - a price estimated at 30 times the station's cash flow. And the following month, Irvine-based Freedom Newspapers Inc., publisher of the Orange County Register newspaper, paid a whopping $160 million for an NBC affiliate station in Palm Beach, Fla., even though it is located in only the 45th largest TV market in the U.S.

"What's been going on here is positioning for the future," said Saltman.

Although a major telecommunication reform bill has been stalled in Congress, industry analysts still expect eventual approval of a law that will raise limits on station ownership; currently, it is illegal to own stations that cumulatively reach more than 25 percent of the U.S. audience. Assuming the law is passed, it will spur a rush to acquire new stations, Saltman said.

The station now known as KCAL started out as the first TV broadcaster in the nation. It began in 1931 after entrepreneur Don Lee was given a license to run an experimental TV station, with the call letters W6XAO.

Formula may be irrelevant

In 1950, Lee's broadcasting company was liquidated and the station was purchased by General Teleradio Inc., which changed its name to KHJ-TV. Disney bought KHJ in 1988 for a reported $320 million, changing the name to KCAL.

Analysts estimate the station's current cash flow at about $20 million a year. Under the typical 10-times cash flow formula, the station would be valued at $200 million, but in the current environment it may attract a bidding war that could push its sale price well over $300 million, analysts said.

One factor that might lower the sale price, though, is the fact that all six networks already own or affiliate with stations in the L.A. market, which will almost certainly keep them out of the bidding.

Likely suitors for KCAL include any large station group that does not already have a presence in Los Angeles, including Viacom, ITT Corp., Hearst Broadcasting Corp., E.W. Scripps Co., and Gannett Co. Barry Diller's Silver King Communications Inc. was also mentioned as a possible suitor.

"If (Diller) could get the financing, he'd buy it up, I'm sure," said Arthur Gruen, president of New York-based media consulting firm Wilkovsky, Gruen & Associates.

Under its deal with the Justice Department, Disney must either sell KCAL to a third party or spin off its assets to Disney shareholders within one year of the date the FCC approves the Capital Cities acquisition. New York investment banker Bear, Stearns & Co. has been hired to find potential buyers.