Disney Agrees to Buy KHJ-TV for $320 Million

Walt Disney Co., flush with success in theme parks, television and movies, said Monday that it plans to become a TV station owner by purchasing KHJ-TV Channel 9 in Los Angeles for $320 million.

If completed, the deal will settle a 22-year dispute over ownership of KHJ, an independent broadcaster that frequently trails in local ratings.

Under terms of the purchase, Disney would pay more than two-thirds of the price, or $217 million, to station owner RKO General, a subsidiary of GenCorp Inc., a diversified manufacturer in Akron, Ohio. An additional $103 million would be paid to Fidelity Television, a Los Angeles company that began a challenge to KHJ’s station license in 1965 and won numerous rounds at the Federal Communications Commission.

Westinghouse Deal

Until six weeks ago, the station was earmarked for sale to Westinghouse Electric. But Westinghouse pulled out after 15 months, when it became evident that federal regulatory approval would not be secured by its self-imposed deadline of Jan. 31.

Although many independent stations have recently suffered a drop in value because of sluggish advertising and high program costs, Disney agreed to pay $7 million more than the purchase price negotiated by Westinghouse in late 1985.

“It’s a case where Disney needs and wants that market so badly that it really is worth the stretch,” said Joseph M. Sitrick, vice president of Blackburn & Co., a brokerage firm in Washington. In the nation’s largest TV markets, Sitrick said, “the rules go out the window.”

Most independent stations in major cities are owned by big groups, like Fox Broadcasting and Tribune Co., giving them significant clout in buying programming from Hollywood suppliers. At least one studio, MCA, recently agreed to acquire WOR-TV in the New York city area from RKO General for $387 million, apparently motivated in part by a desire to have a captive outlet for its programs.

“You don’t do it for that reason,” said Disney Chairman Michael D. Eisner, but “if by the way you protect yourself, that’s great.”

Eisner said Disney agreed to buy KHJ because it would complement the Burbank company’s other entertainment-related businesses, including the Disney Channel on cable TV. As a local station, KHJ would also be an outlet for Disney promotions for the Disneyland theme park in Anaheim. Eisner also said he expects the station’s operating income to grow at the rate of 20% a year in the robust Los Angeles market.

Disney anticipates receiving $400 million in May from sale of its Arvida real estate development unit, with proceeds used to pay for KHJ, Eisner indicated. As of Dec. 31, Disney also had $122.5 million in cash on hand.

Instead of soliciting bids for KHJ after the Westinghouse offer failed, GenCorp chose to negotiate with just one company, and Disney lobbied hard to become the candidate.

Year-Old Effort

Eisner said he made his first overture more than a year ago, when he visited GenCorp officials.

Later, Eisner and Disney President Frank Wells actively expressed interest to William G. Simon, a former FBI agent who organized Fidelity Television to challenge KHJ’s license renewal, initially objecting to its programming.

Eisner and Wells “were very forthright and on the ball,” said Simon, who headed the FBI office in Los Angeles from 1960 to 1964. Simon, 73, is an attorney in private practice.

Licenses of RKO General stations were first challenged in the 1960s on programming grounds. Then, in 1977, the FCC brought an action against GenCorp for alleged bribes and illegal payments to public officials.

When GenCorp decided two years ago to sell all its broadcast properties, it recognized the merit of enlisting Simon’s company to reach a settlement so that KHJ could be sold.

In a telephone interview, GenCorp President A. William Reynolds explained that KHJ’s legal problems prompted GenCorp’s decision to negotiate a sale with a carefully selected buyer, rather than auctioning the station to the highest bidder.

“Frankly, we thought this was too complex,” Reynolds said.

The station’s fate can be determined through either of two proceedings at the FCC. In one, the commission could decide to allow the settlement proposed by Fidelity, GenCorp and Disney. In the other, the 22-year-old comparative hearing could end with a ruling, possibly this year, about GenCorp’s eligibility as a license holder.

Objections to Deal

In either case, appeals could delay a final decision, Simon noted.

William H. Johnson, deputy chief of the FCC’s mass media bureau, said he believes that the comparative hearing might be concluded this year. Johnson cautioned, however, that the FCC staff had raised some objections to the two-stage sale to Westinghouse after it was proposed.

Both Reynolds and Simon said the Disney sale would be modeled closely on the Westinghouse deal.

Eisner said KHJ would give the company a “foothold” as a station owner, if it chooses to add others in the future. At the same time, he defended the purchase on a “stand-alone” basis.