Paramount Pictures, which has been looking to join the ranks of entertainment firms that own television stations, agreed Tuesday to acquire the right to buy a majority stake in struggling TVX Broadcast Group from the New York investment banking firm Salomon Bros.
A tentative agreement now gives Paramount prospects of ending up with a 79% interest in five independent UHF stations. Four of them are located in the nation's top 10 TV markets: WTAF in Philadelphia, WDCA in Washington, KTXH in Houston and KTXA in Dallas-Ft. Worth. The fifth is WLFL in Raleigh-Durham, N.C.
Although the price for a future purchase was not announced, an industry executive familiar with the deal put it at about $125 million. Salomon has about $140 million invested in its TVX stock.
The initial reaction by analysts, speaking without benefit of details, was that the complex transaction looked like a good opportunity for Paramount to enter the broadcasting field at a relatively low cost.
The motion picture studio, a subsidiary of New York-based Gulf & Western, produces TV programs and is known as a major player in first-run syndication, which would fit well with station ownership. (In first-run syndication, new TV programs--as opposed to reruns of shows that first appeared on network affiliates--are sold to independent stations.)
Others film producers that own TV broadcasting stations are Fox Inc., the parent of 20th Century Fox Film Corp., with seven former Metromedia stations; Walt Disney Co. with KHJ in Los Angeles and MCA Inc. with WWOR in the New York area.
The Paramount deal for TVX has a unique backdrop. Salomon ended up with its 79% interest almost inadvertently, having made a short-term "bridge" loan to TVX for its acquisition of five stations from Taft Broadcasting for $240 million in April, 1987. Salomon then found itself unable to arrange high-yield "junk bond" financing that would pay off its loan.
Under a recapitalization of the Virginia Beach, Va.-based broadcaster last November, Salomon swapped its TVX debt for preferred and common stock.
Meanwhile, debt-burdened TVX had encountered various financial difficulties, posting a $48-million loss in 1987. Its stock price, which was about $12 a share shortly after going public in October, 1985, dropped sharply in the October, 1987, market crash. The stock kept going down, leveling off at about $2 a share. It rose $1.625 a share Tuesday on the news of the Paramount deal, closing at $3.875 in over-the-counter trading.
TVX now owns nine independent TV stations, but four have been designated for sale in connection with the recapitalization. It recently sold one of its independent stations, WCIX in Miami, to CBS Inc. for $59 million.
According to sources, Paramount is to put up only $10.4 million for an initial transaction that will launch it into a joint venture with Salomon. The announcement said Salomon would contribute TVX equity securities representing about 51% of TVX's outstanding voting common stock, and Paramount would acquire 49% of the joint venture, thus controlling about one-quarter of TVX. The transaction is subject to reaching a definitive agreement and regulatory approvals.
Real Price Unknown
After entering the joint venture, Paramount would have a four-year option to buy out Salomon's entire interest in TVX, sources said. Depending on various factors, one said, the full price would range between $125 million and $180 million.
"You can't tell the real price" from information in the announcement, noted Jeffrey Logsdon, a securities analyst with Crowell, Weedon & Co. in Los Angeles. He added that the "debacle" of TVX apparently paved the way for Paramount to realize its plans of entering TV broadcasting.
Analyst Christopher Dixon of Kidder, Peabody & Co. in New York said the reputed price would make it possible "to test the waters and "get a handle on" how a TV station group operates "at a very low cost."