Radio giant plans to grow No. 1 Westinghouse to buy American for $2.6 billion

September 20, 1997|By BLOOMBERG NEWS

PITTSBURGH -- Westinghouse Electric Corp. agreed to buy the broadcast operations of American Radio Systems Corp. yesterday for $2.6 billion, giving the nation's largest radio station owner a stronger grip on markets outside the top 10.

Westinghouse, which also owns the CBS television network, plans to pay $44 a share in cash, or $1.6 billion, and assume $1 billion in debt for the fifth-largest radio company's 98 stations. Before the transaction is completed, American Radio will spin off its radio and telephone tower business.

The purchase comes amid a wave of consolidation following loosened limits on station ownership. Late last month, Westinghouse's closest rival, Hicks Muse Tate & Furst Inc., announced a $1.2 billion takeover of SFX Broadcasting Inc., a target that several radio companies including Westinghouse had prized. Hicks Muse is affiliated with major radio companies Capstar Broadcasting Corp. and Chancellor Broadcasting Co., which is merging with Evergreen Media.

And it shows that CBS radio and television station boss Mel Karmazin is serious about maintaining the company's dominance in radio; Westinghouse will have 175 stations from New York to Seattle.

"It extends its reach in markets below the top 10, and is a meaningful acquisition in size and bulk," said Edward Hatch, an analyst with UBS Securities.

The $44-per-share offer sent American Radio down 8 percent, or $3.9375, to $47.9375 on the New York Stock Exchange. Westinghouse shares climbed 12.5 cents to $26.125.

Pittsburgh-based Westinghouse became the largest radio company last year with its $3.8 billion acquisition of Karmazin's Infinity Broadcasting Inc.

Westinghouse plans to split into separate broadcasting and industrial companies in the next month or two, finishing the company's transformation led by Chairman Michael Jordan.

As part of that plan, Westinghouse sold its Thermo King refrigeration unit to Ingersoll-Rand Co. Monday for $2.56 billion. The broadcasting part will be renamed CBS Inc.

American Radio said Aug. 20 that it hired a banker to develop a plan to boost its stock, signaling that it might be for sale.

The acquisition is expected to add $175 million in cash flow, or earnings before interest, taxes, depreciation and amortization, to CBS Radio's projected amount of $685 million next year, Hatch said.

American Radio gives Westinghouse 19 stations in the top 50 markets in the country, including some where CBS has existing radio and television stations.

One of the reasons for the recent round of industry purchases -- in which stations worth more than $20 billion have changed hands -- is the advertising and administrative cost savings that come with owning more stations in a market. Until recently, the government had tight restrictions on ownership.

"The acquisition of American Radio is financially and strategically attractive for CBS," Karmazin said in a statement.

The acquisition is expected to add to Westinghouse's earnings in its first year, the company said.

While running Infinity, Karmazin was a favorite of holders because his emphasis on sales growth and lean budgets led to strong results and high returns.

American Radio's profit margins are lower than CBS', giving the new parent a big opportunity to create savings, Hatch said. "It means American Radio should be a fast grower," he said.

The combination could spark federal antitrust concerns in the Boston market, analysts said. Combined, Westinghouse could control about 60 percent of that market, above the 40 percent threshold usually considered the limit for station ownership.

The acquisition needs the approval of both the Justice Department, which will look at potential antitrust problems, and the Federal Communications Commission, which must decide if the combination is in the public interest.

American Radio Chairman Steven Dodge and other holders with a majority of voting rights agreed to the sale, which is expected to be completed in the second quarter.

Top radio companies

The four largest U.S. radio companies, according to projected 1997 station revenues:

Westinghouse Electric Corp., $1.5 billion

Hicks Muse Tate & Furst Inc., $1.4 billion

Jacor Communications Inc., $575 million

Clear Channel Communications Inc., $450 million

Source: Duncan's American Radio Inc.

Pub Date: 9/20/97

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