Capital Cities Will Sell 53 Cable Systems : Washington Post Co. to Pay $350 Million

Washington Post Co. has agreed to pay $350 million in cash for 53 cable-television systems that Capital Cities Communications must shed as part of its merger with American Broadcasting Cos., the two companies said Monday.

“This acquisition gives us a major stake in cable television,” Washington Post Chairman and Chief Executive Katharine Graham said in a statement. “After more than a decade of substantial investment, we believe the industry is in a position to deliver the kind of returns that have been forecast for years.”

The cable systems have about 350,000 subscribers in 15 Western, Midwestern and Southern states, which would make Washington Post Co. the nation’s 20th-largest cable company, spokesman Guyon Knight said. That total includes 85,000 subscribers in the California towns of Modesto, Santa Rosa, Burlingame, Oakdale and Union City.

Seeking Other Buyers

Two Capital Cities cable operations in Plymouth and Saline, Mich., are not included in the transaction because Washington Post Co. owns a television station in Detroit and therefore would be prevented by regulators from buying those cable systems. The Federal Communications Commission prohibits ownership of more than one media property in one market.

Capital Cities is seeking a buyer for the remaining cable-television systems and is divesting a newspaper and some radio and television stations as part of the conditions of its merger with ABC.

Analysts said the definitive agreement is a good move for both sides.

Capital Cities will be rid of most of its cable division, “which they’re basically selling because they have to sell, not because they want to sell,” said John S. Reidy, an analyst with Drexel Burnham Lambert.

“As for the Washington Post, it’s a logical avenue of media diversification,” he said.

The $350-million price that Washington Post Co. will pay is in line with the typical price of $1,000 per subscriber in cable transactions, said John Morton, newspaper analyst with the brokerage firm of Lynch, Jones & Ryan.

Capital Cities’ cable division had income from operations of $2.5 million on net revenue of $76.3 million in 1984. The Capital Cities cable system hasn’t been greatly developed, and “its really profitable years, assuming there will be profitable years, are ahead,” Morton said.

Washington Post Co. said it will borrow the money to buy the cable operations. Earnings will be cut in the first year following the acquisition by about $1.85 per share, the company said. For 1984, the company reported earnings of $6.11 per share.

Morton said the cable operations probably won’t contribute to company earnings until 1990 or 1991.

But Reidy noted that cable systems generate large amounts of cash that are an increasing boost to earnings as the system ages because less capital investment is required. The Capital Cities cable systems will generate $30 million this year and about $35 million next year, he said.

The acquisition, which is expected to be completed in early 1986, is subject to various regulatory approvals and is contingent on the completion of the merger between Capital Cities and ABC.