Westinghouse to Buy Infinity Broadcasting
The nation’s two biggest radio companies, taking advantage of relaxed federal communications regulations, announced Thursday that they will combine in a $4.9-billion deal that will create a coast-to-coast powerhouse in one of the communications industry’s most overlooked, yet profitable, mediums.
Westinghouse Electric Corp.'s acquisition of Infinity Broadcasting Corp.--which involves a $3.9-billion stock swap and $1 billion in Infinity debt--would create a company with $1 billion in revenue and 83 stations, including such major Los Angeles operations as alternative rock leader KROQ-FM, oldies format station KRTH-FM and news stations KNX-AM and KFWB-AM.
It also brings together an eclectic array of programming, ranging from Infinity shockjocks Howard Stern and Don Imus to such CBS television programs as “60 Minutes,” “Late Show with David Letterman,” “Dr. Quinn, Medicine Woman” and “The CBS Evening News With Dan Rather.”
The deal, which comes 11 months after Westinghouse bought television and radio network CBS Inc. for $5.4 billion, was triggered by sweeping revisions in February of the Communications Act of 1934, legislation that is causing widespread industry consolidation. Those changes allow a single owner to have up to eight stations in the largest radio markets, with no more than five being either FM or AM. Previously, companies could own two FM and two AM stations in a single market. At one time, they could only own a single FM and AM station in an area.
The deal drew immediate fire from public-interest groups, who said that the proposed combination should be scrutinized by federal antitrust regulators.
“We think there are significant antitrust problems with this combination,” said Gene Kimmelman, co-director of the Washington office of Consumers Union. “Although there are no current national ownership limits on the number of radio stations, this deal will lead to the exercise of undue economic power over advertisers and undue economic power over what gets presented over the airwaves.”
James H. Quello, of the Federal Communications Commission, which oversees the broadcasting industry, said: “My philosophy [is that] as long as there is robust competition, big is not necessarily bad, but this deal will have to pass [antitrust] approval,”
Westinghouse and Infinity executives dismissed such worries. Infinity Chief Executive Mel Karmazin said at a press conference that he finds the antitrust concerns “bizarre,” noting that there are 10,000 radio stations in the country and that radio has only about 7% of the entire media advertising pie. The combined companies, he said, will have only about 8% of the nation’s radio market.
“This is not Microsoft,” Karmazin said, adding, “I don’t know of any other industry where somebody would say: ‘Gee, you guys have 8%. Are you not going to grow anymore?’ ”
Still, executives plan to divest, either through a sale or swap, two stations in Dallas and two in Chicago, where the combined company would have more stations than allowed by federal rules. No divestitures are planned in Los Angeles.
Westinghouse and Infinity executives also said that the merger will not cause any changes in programming and that the company will have a relatively hands-off attitude toward its most controversial syndicated program, hosted by the popular Stern.
The show, which has been criticized for its frequent sexual references, came under fire from Latino groups last year for making what they said were insensitive remarks about the popular tejano singer Selena after she was slain.
Asked at the press conference whether Westinghouse would allow Stern the kind of free rein that Infinity has given him, Jordan said: “As long as Howard follows the rules. He’s been following the rules. That’s fine. We believe in diversity.”
Last September, Infinity paid the federal government $1.715 million to resolve more than 100 claims of indecency involving Stern’s radio show, the largest settlement of its kind.
Infinity had steadfastly backed Stern in his frequent fights with the FCC, but the stakl advantages to be gained by combining stations in the nation’s biggest markets, which allows the company to sell more advertising packages targeted to a range of demographic groups and to consolidate overlapping operations.
“It’s a good strategic fit among the stations. It enables them to better market stations to advertisers, and they get a strong management team in Infinity,” said Inger Dewey, analyst in the media and entertainment group at investment bank Schroder Wertheim in New York.
Another benefit is expected to be the use of the stations to help launch and promote TV shows for CBS, which has revamped its programming schedule.
Other possibilities include the simulcast of CBS news programs and even soap operas. The Sunday night simulcast of “60 Minutes” on radio stations in several markets is considered highly successful by CBS executives.
Analysts generally praised the deal, although several said that they believe Westinghouse is overpaying for Infinity. Some also wondered whether an entrepreneur like Karmazin will mesh well into the more conservative culture of Westinghouse, which has already spent the last year getting used to the culture of an entertainment company in CBS.
“Our senior management meetings are going to kind of be like the bar scene in ‘Star Wars,’ ” Jordan joked. “But we think we’re going to forge a great organization with great drive and great entrepreneurial spirit.”
Karmazin will have plenty of clout. As the owner of 2% of the combined company’s stock, he will be the largest individual shareholder.
Karmazin has a four-year contract to stay with Westinghouse, and will become chairman and chief executive of the Westinghouse/CBS Radio Group, reporting to Jordan. He also is expected to join Westinghouse’s board of directors.
For Westinghouse, known over the years for making everything from refrigerators to nuclear reactors, the acquisition is part of an ongoing transformation from an ailing industrial conglomerate into an entertainment and broadcasting company. The Pittsburgh, Pa.,-based company is considering spinning off its operations unrelated to broadcasting.
The deal also enhances what Jordan calls the “hidden jewel” of Westinghouse’s original acquisition of CBS last year. Although the television network, with its glamorous stars and high-profile news anchors, gets the bulk of the public attention, Jordan has long insisted that from a financial standpoint the radio operation is critical to whether the deal proves a success.
Westinghouse shares fell 75 cents to close at 18.125 on the NYSE. Infinity rose 50 cents to 29.125 on NYSE.
Westinghouse is expected to make more acquisitions to complement its Infinity deal. Jordan declared emphatically, however, that the company has no plans to eventually buy a movie studio.
“We do not believe that our fundamental thrust should be to buy a studio,” Jordan said. “We don’t want to be in the movie business because, quite frankly, I don’t think you make any money in it.”
Some CBS executives are clearly concerned that the Walt Disney Co., with its studio operation, may be able to offer actors, writers and producers more lucrative overall deals than CBS because it does not own a studio. In addition, they see the network at a disadvantage when it comes to buying hit movies to air.
To that end, Westinghouse and CBS are known to have held informal discussions exploring possible strategic alliances with MCA Inc. and Sony Pictures Entertainment, although nothing is imminent.
Karmazin said that after the federal rules were relaxed in 1992, he approached CBS and Westinghouse separately about buying their radio operations but was rebuffed.
He even acknowledged that he wanted the CBS radio operations so badly he tried to find a partner to trump Westinghouse’s deal last year before it was made final.
In February, Karmazin said, he became interested again with the passage of the telecommunications reform legislation. Executives at Chase Securities, part of Chase Manhattan Bank, then linked him up with Westinghouse executives.
Karmazin is one of the industry’s more reclusive figures, telling reporters that he doesn’t do press conferences. One would never know it, however, from his performance, which was peppered with wisecracks and colorful anecdotes. He said this is the most exciting time in radio “since Marconi, and I started this industry.”
Times staff writer Jube Shiver Jr. in Washington contributed to this story. Bates reported from Los Angeles and Hall from New York.
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