Metromedia Seeks Sale to Raise Cash, Sources Say : Fox Film May Buy 6 TV Stations

Metromedia Inc., the giant communications company, plans to sell six of its seven television stations, including KTTV-Channel 11 in Los Angeles, to an entity controlled by 20th Century Fox Film Corp., investment industry sources said Thursday.

20th Century Fox is owned by Australian press baron Rupert Murdoch and Denver oilman Marvin Davis.

Sources said that Metromedia is under pressure to sell assets because the company otherwise might have difficulty making future interest payments.

Metromedia added about $1.3 billion in debt to its books when the company was purchased in a leveraged buy-out last year by an investor group led by its chairman, John W. Kluge. Sources said Murdoch and Davis were minority investors in the buy-out.

Metromedia’s heavy debt includes high-yielding, risky securities known as “junk bonds,” a target of recent congressional hearings. Some members of Congress are worried that the growing use of these risky bonds to finance takeovers poses a threat to the nation’s financial system by saddling corporations with heavy debt.

Federal Communications Commission sources said they expect to meet with representatives of the Murdoch-Davis group today. The group will have to convince the FCC that the proposed purchase does not violate restrictions on the ownership of media properties.

Restrictions on Murdoch

As a foreign citizen, Murdoch is prohibited from owning more than 25% of a company that controls a TV station. Sources said he could get around that restriction by becoming a naturalized U.S. citizen or by structuring the transaction so that he owns less than 25%.

Also, a single owner is prohibited from having both a newspaper and a television station in the same city, which would appear to cause problems for Murdoch in Chicago and New York, where he already owns newspapers and plans to buy Metromedia TV stations.

The FCC also would have to approve the transfer of broadcast licenses, a process that could take months.

According to sources, Metromedia plans to sell independent television stations in New York, Los Angeles, Chicago, Houston, Dallas and Washington to the Murdoch-Davis group and is negotiating with American Broadcasting Cos. regarding the sale of its Boston TV station, which is an ABC affiliate.

Paul Kagan, a Carmel, Calif.-based broadcasting consultant, said Thursday that Metromedia is seeking to sell the stations in part because of the high prices being paid now for television stations.

Murdoch owns media properties, including the New York Post and the Chicago Sun-Times, on three continents.

Murdoch and Davis became partners in March when Murdoch agreed to purchase 50% of the company that controls 20th Century Fox from Davis, who still owns the other half. Sources said that Metromedia stations could be used as outlets for 20th Century Fox productions.

The suggestion of financial pressure on Metromedia raises questions about Ted Turner’s hostile takeover bid for CBS.

Turner’s proposal, which includes no cash and consists entirely of risky “junk bonds,” was patterned after Metromedia’s leveraged buy-out plan, investment banking sources said.

Most Wall Street estimates of the value of Turner’s proposal have relied on the Metromedia junk bonds as a guide.

Sources said Metromedia, heavily laden with debt from the buy-out, encountered financial pressure after the cost of obtaining programming for its independent TV stations increased while the growth of revenue slowed.

Metromedia, which also plans to sell a production company to Murdoch and Davis as part of the deal, according to sources, would retain ownership of properties including a telecommunications company that is involved in radio paging and cellular telephones.

Last December, Metromedia raised $1.3 billion by selling junk bonds. Leonard Pack, Metromedia’s associate general counsel, said in December that one of the advantages of the junk bonds was that they included zero-coupon notes, which require no interest payments until 1988.

Sources said Thursday that Metromedia made the decision to sell its stations after coming under financial pressure now and realizing that it would have difficulty meeting those payments in 1988.