New World-King Deal May Be Near

New World Communications Group could announce as early as next week a deal to buy King World Productions for as much as $1.5 billion in stock, according to Wall Street sources.

The deal would catapult New World, which has had limited success in launching new shows, into the top ranks of television syndication with three top-rated shows, “Jeopardy,” “Wheel of Fortune” and “The Oprah Winfrey Show.” It would give King World, which owns no television stations for launching shows, access to the 10 Fox affiliates owned by New World.

A report in Daily Variety on Friday that a deal was imminent drove up King World shares $2.75 to close at $39 on the New York Stock Exchange. New World shares rose about 44 cents, to $15.38.

But Wall Street sources said the market was overreacting given the terms of the deal, which they said would give 2.5 shares of New World to each King World stockholder. At Friday’s closing price, that would translate to a value of about $38.44 for King World shares--at the low end of its trading range this year.

The acquisition could complicate Fox Broadcasting Co.’s pursuit of New World. News Corp. Chairman Rupert Murdoch is said to want the New World stations to keep his own Fox television distribution on equal footing with fast-expanding rivals such as Westinghouse Electric Corp.

Although recent talks between Murdoch and New World broke down over price and the huge value that New World owner Ronald Perelman placed on the entertainment group headed by Brandon Tartikoff, Fox sources say discussions are not dead.

Though sources close to Perelman say the New York financier is determined to build a full-service entertainment company, many television executives viewed a Fox purchase as inevitable after New World sold two NBC affiliates to General Electric last month, leaving New World only its Fox affiliates.

What’s more, conversion of the stations from CBS to Fox affiliations over the last year was more costly and difficult than forecast to Wall Street. Few shows produced by Tartikoff’s group have taken off. And sources say huge investments in new shows like “Access Hollywood,” being developed with NBC, could be a further drain.

In the first quarter, New World lost $14.5 million, nearly double a loss of $7.49 million for the same quarter the previous year.

King World could provide short-term relief and perhaps prop up New World’s stock price, which has fallen from a yearly high of $20.38 a share in April. Not only does King World have roughly $600 million in cash to reduce New World’s debt, but distribution fees from the three big syndicated shows could amount to an estimated $1.5 billion in revenue over the next several years and $150 million a year in free cash flow, according to Jeffrey Logsdon, an analyst at the Seidler Cos.

Roger and Michael King, the brothers who built King World into a leading syndicator, have been looking to sell the company for more than a year. Turner Broadcasting System considered purchasing the company last summer and using King’s cash to finance a CBS bid.

King World has had little luck in launching its own shows, and its last marginal success, “Inside Edition,” is in its ninth season.