Westinghouse Plans to Buy KHJ-TV Channel 9 in $313-Million Deal

Diversified manufacturer Gencorp said Tuesday that it has agreed to sell its chronically underachieving KHJ-TV Channel 9 in Los Angeles to Westinghouse Electric as part of a broad restructuring.

The $313-million deal represents a lucrative victory for a group of prominent Southern California investors who have tried to wrest the station’s broadcast license from Gencorp’s RKO General subsidiary for more than 20 years. It also signals Westinghouse’s determination to remain in the broadcast business.

Under the agreement, RKO General will drop its application to renew its Federal Communications Commission license, leaving as the only remaining applicant Fidelity Television Inc., which has doggedly sought the license since 1965. Westinghouse will buy out Fidelity’s 52 shareholders for $95 million and will pay $215 million to RKO General.

FCC Approval Required

Westinghouse has agreed to spend another $3.25 million to cover Fidelity’s potential debts. The deal requires FCC approval.

Gencorp, an Akron, Ohio-based tire, aerospace and chemical company, said it will also seek buyers for its WOR-TV Channel 9 in Secaucus, N.J., close a tire plant and buy back part of its stock. News of its plans boosted its stock price by $7.125 to $61.375 on the New York Stock Exchange. Westinghouse stock remained unchanged at $42.75.

The task of hanging onto its television broadcast licenses has long been an expensive headache for RKO General. The FCC objected to the quality of the network’s programming in the mid-1960s; then, in 1977, it sued Gencorp for alleged bribes and illegal political payments to public officials.

In recent years, Fidelity had won rounds before the commission and an adminstrative judge in its challenge to KHJ’s license, “and the fight could easily have dragged on for another five years,” said Harry W. Millis, an analyst at McDonald & Co., a Cleveland brokerage. “It was a problem they could really do without.”

‘Long, Hard Effort’

RKO General plans to keep WQBH-TV in Memphis, Tenn., and 12 television stations that include KRTH-FM and KHJ-AM in Los Angeles. The company’s battles with the FCC have already cost it its Boston television license.

William G. Simon, 72, an attorney who organized Fidelity and is its largest shareholder, said FCC approval and consummation of the deal would come as a welcome end to a “long, hard effort.” Among the company’s shareholders are actress Donna Reed; Maude Chasen, owner of the restaurant of the same name; former Congressman George Danielson of Monterey Park, and producer Mervyn LeRoy.

Simon, who headed the Los Angeles division of the FBI between 1960 and 1964, said the proceeds will be divided between the shareholders according to the size of their investment. He declined to identify the shareholders with the largest stakes.

James C. McKinley, chief of the FCC’s mass media bureau, said the planned change of the license “can be legally done.” But he said the issues pending against RKO will not be dropped but will be considered in hearings on other company-held broadcast licenses.

Without a television network affiliation, KHJ has struggled to come up with winning programming, and the station has been rated last in audience share among the Los Angeles market’s VHF stations.

KHJ has been profitable, according to analyst Millis, “but they’ve gotten far less out of it than you might have in the country’s second-biggest market.” He estimated RKO General’s pretax operating profit margin on the station at about 10%--far below an industry standard of 25% to 30%, he said.

While the price is far below the record $510 million paid for KTLA-TV by Chicago-based Tribune Co., it is a “reasonable price” when judged against the station’s earnings, Millis said.

No Quick Reversal Seen

Prices for stations are often calculated in terms of their annual cash flows. Daniel L. Ritchie, chairman of Westinghouse Broadcasting & Cable Inc., declined to say what multiple of KHJ’s cash flow was represented by the price, but he said it was “generally in line” with what others have paid recently.

Several stations have recently sold for 11 or 12 times annual cash flow.

Ritchie said Westinghouse does not expect to quickly reverse the station’s fortunes but hopes to use the company’s ability to develop local news and entertainment programming “so we’ll have plowed some new ground over the next three to five years.”

Since Westinghouse announced its intention to sell its vast Group W cable-television operations, some analysts have speculated that Westinghouse might also sell off its television and radio stations. The agreement “shows we’re dedicated to this business, as we’ve said all along,” Ritchie said.

Westinghouse owns 11 radio stations and five television stations: WBZ-TV in Boston, KPIX-TV in San Francisco, KYW-TV in Philadelphia, WJZ-TV in Baltimore and KDKA-TV in Pittsburgh.

Analysts said Gencorp decided to restructure not only to shed its weaker units but to raise cash for a stock buy-back that would make it less vulnerable to a takeover.

$700 Million in Cash

McDonald’s Millis speculated that RKO General might receive $400 million from the sale of WOR-TV, a “superstation” that serves the New York market.

Those proceeds, plus the earnings from the KHJ sale and Gencorp’s sale of Frontier Airlines, will give the company a total of $700 million in cash with which to buy back a portion of its stock, he said.

Gencorp would not say how much of its stock it may repurchase, but analysts speculated that it may buy one-quarter to one-third of the 22 million outstanding shares.

Closing of the General Tire plant at Waco, Tex., late next spring will eliminate 1,400 jobs, including those of about 500 who are eligible for retirement, the company said. The company said the closing was forced by slow sales of bias-ply tires, which have been losing ground in competition with radial tires.

Gencorp earned $7.2 million last year on sales of $2.73 billion.

Times staff writers Jay Sharbutt, in Los Angeles, and Penny Pagano, in Washington, also contributed to this article.