ABC, Capital Cities to Sell 4 Radio Stations in L.A. to Meet FCC Rules

A proxy statement released Monday by Capital Cities Communications indicates that its proposed merger with American Broadcasting Cos. will probably force the sale of four television stations and 15 radio stations--including four well-known Los Angeles radio outlets.

While retaining its license to operate KABC-TV Channel 7 in Los Angeles, the new company that would result from the Capital Cities-ABC merger would have to sell ABC’s two Los Angeles radio stations--KABC-AM and KLOS-FM--as well as Capital Cities’ KLAC-AM and KZLA-FM, according to the proxy statement.

Neither of the general managers for the two ABC stations was in Los Angeles on Monday, and other station personnel declined comment on the proposed sale except to say that the news was not unexpected.

Home of Dodgers

One industry newsletter, Inside Radio, had already speculated that KABC-AM, the perennially second most listened-to station in Los Angeles, could command a price as high as $70 million. KABC, radio home of the Los Angeles Dodgers baseball team, is regularly second only to KIIS-FM in the quarterly Arbitron Ratings, which track radio listenership in the highly competitive Los Angeles market, where 85 stations compete for listeners.

Vernon Ore, general manager of both KLAC-AM and KZLA-FM, deferred to Jim Arcara, Capital Cities executive vice president-radio, on the question of his stations’ sales. Both stations play country music--the only stations in the immediate Los Angeles area that do.

Arcara said the proxy statement spoke for itself on the question of station sales.

According to the statement, Capital Cities-ABC may seek a temporary waiver from Federal Communications Commission rules, thus postponing the station sales until after the merger takes place.

But an FCC spokesman said late Monday that the regulatory agency would probably only give Capital Cities-ABC a maximum of one year from the date of the merger to sell off the properties, even if a waiver is granted. That would mean that all four radio stations could have new owners by next spring, assuming that Capital Cities and ABC shareholders approve the merger plan at simultaneous shareholder meetings scheduled for June 25.

Keep Philadelphia Station

The two companies first announced plans for the friendly merger on March 18. Two-thirds of ABC’s shareholders must approve the merger plan before it can be consummated.

The one permanent waiver that Capital Cities would seek under its merger plan, according to the proxy statement, would be to retain its Philadelphia television station, WPVI-TV. That station’s signal overlaps with ABC’s flagship TV station, WABC-TV in New York, and thus would have to be divested under FCC rules.

Under FCC cross-ownership prohibitions, a single company cannot own a television station, radio station and/or a newspaper in the same market. ABC has maintained a TV station, AM and FM radio station in Los Angeles over the years because the company owned all three licenses before the FCC imposed the cross-ownership prohibition and was, therefore, allowed a “grandfather” waiver, according to FCC sources. The merger would nullify that waiver.

One Capital Cities source had speculated that the new company might fight to retain ownership of two AM stations--KABC in Los Angeles and WABC-AM in New York--on grounds that Capital Cities-ABC might need them as broadcast outlets in the event of a national emergency.

Can’t Own Cable System

In addition to the station cross-ownership rule, a television network such as ABC is also forbidden under FCC guidelines to own a cable-TV system. As a result, Capital Cities also proclaimed its intent to sell off its cable systems.

As outlined in the proxy statement, the divestiture plans for the two companies would call for the following sell-offs:

Capital Cities: WTNH-TV in New Haven, Conn.; WFTS-TV, Tampa, Fla.; WKBW-TV, Buffalo, N.Y.; WPAT-FM and AM, Paterson, N.J.; KLAC-AM and KZLA-FM, Los Angeles, and WKBW-AM, Buffalo. Red Bank Register Co., which publishes the Daily Register in Red Bank, N.J., would also be sold.

American Broadcast Cos.: WXYZ-TV, Detroit; KTKS-FM, Dallas; KSRR-FM, Houston; WRIF-FM, Detroit; WABC-AM and WPLJ-FM, New York; KABC-AM and KLOS-FM, Los Angeles; WLS-AM and FM, Chicago, and KGO-AM, San Francisco.

Stock Exchange Objects

The proxy statement also disclosed that the New York Stock Exchange, where the stock of both ABC and Capital Cities is traded, has “informally” objected to a key provision of the merger--the irrevocable proxy by investor Warren Buffett granting Capital Cities executives voting rights over his 3 million shares, or 19% of the combined company, for 11 years.

Buffett is to receive the shares through his holding company, Berkshire Hathaway, in return for his $517.5-million equity investment in the combined company.

The Big Board, according to the statement, believes that the voting-rights provision violates its rules, and it therefore may move to delist the stock. If that happens, Capital Cities will list its stock on the over-the-counter National Market System, a step that would make it the largest company traded over the counter.

To maintain its edge over the NASDAQ system in an increasingly competitive environment, Capital Cities and ABC sources said they believe that the New York Stock Exchange will probably overlook its own objections. Exchange officials could not be reached for comment.

The Capital Cities and ABC statements also give details on other provisions developed by First Boston Corp., ABC’s investment banker, to overcome the numerous uncertainties involved in the unprecedented change of network control.

These include ABC’s proposed buy-back of up to 1.1 million of its own shares, a device designed so that ABC can “prop up its price in the face of uncertainty,” said an official of First Boston familiar with the negotiations. The merger agreement also provides for a 6% increase in the price per share if the deal is not consummated by Jan. 5 and larger increases if the merger remains uncompleted after July 1, 1986, or Jan. 1, 1987.

Times staff writer Michael A. Hiltzik also contributed to this article.