Westinghouse to Buy 2 Gaylord Cable Channels

After more than a year of on-and-off negotiations, Westinghouse Electric Corp. agreed Monday to buy two country music cable channels from Gaylord Entertainment Co. for $1.55 billion in a stock transaction that triggered a sell-off on Wall Street of Gaylord stock.

Shares of the Nashville-based Gaylord dropped $3.125, closing at $22.25 on the New York Stock Exchange in trading 10 times heavier than normal. Some investors had anticipated a price of $30 a share or more from the sale of the entire company, which also includes the Grand Ole Opry and Opryland USA theme park.

The proposed acquisition, which must be approved by shareholders, values the two networks at about $16 a share. The Gaylord family controls about 60% of the voting stock, so approval is virtually certain.

Westinghouse shares lost 37.50 cents, closing on the New York Stock Exchange at $17.375 as investors drove down the Dow.

For Westinghouse, the purchase of TNN: The Nashville Network and CMT: Country Music Television would help shore up a weakness in cable at CBS Inc., which the industrial giant purchased last year. While other broadcasters have given cable operators the rights to their signal in exchange for carriage of new cable networks, CBS missed the opportunity--and the chance to offset declining network viewership as cable has grown.

TNN, the eighth-largest cable channel, has about 70 million subscribers and carries country-western lifestyle programming, such as NASCAR racing and country music. CMT reaches 38 million households primarily with country music videos.

CBS has become more aggressive in becoming a broad-based media company since the Westinghouse takeover, becoming the nation’s largest radio station owner as a result of its purchase of Infinity Broadcasting and buying the 24-hour Spanish-language news channel, TeleNoticias.

Although other parties, such as Walt Disney Co., Universal Studios and ITT Corp., were interested in buying Gaylord in its entirety, analysts said Westinghouse had the inside track because of a distribution deal between the two parties that served as a virtual poison pill. Westinghouse’s Group W unit, which helped launch TNN in 1983, already owns a third of CMT, and markets both networks to cable and satellite operators for a handsome fee of 35% of revenues, which were $335 million last year. (Westinghouse had 1995 revenue of about $6.3 billion.)

Analysts say that gave Westinghouse an advantage at the bargaining table. While the company had shopped itself last year, it was unable to get its asking price of $35 a share, especially with the lucrative Group W distribution deal in place.

Analysts say Westinghouse, which paid dearly for both CBS and Infinity, is paying a more reasonable price for the two networks. Derek Baine, an analyst at Paul Kagan Associates, a market research firm, said cable networks are fetching multiples of 13 to 14 times projected cash flow for next year. Based on $115 million in cash flow projected for next year, Westinghouse is paying less than a 13 multiple.

But Gaylord investors like fund manager Mario Gabelli say the transaction is still good for both sides because it is being constructed as a tax free deal and because Westinghouse stock is undervalued. “I’m getting Westinghouse stock at two-thirds its value,” said Gabelli, who contends the assets remaining in Gaylord are worth $15 a share.

Gaylord hit $28.125 last summer after speculation that the company would be sold.

Westinghouse plans to spin off its industrial businesses into a separate company in the third quarter, leaving the broadcast properties to operate as CBS Inc. The Gaylord transaction is scheduled to close before summer, according to Donald Mitzner, president of CBS Cable.

Some analysts believe Westinghouse decided to make a deal because it realized the difficulty of starting new channels from scratch. The company will launch its new Eye on People news and entertainment channel March 31 with a scant 3.5 million subscribers.

Westinghouse said the channels will complement its eight country music radio stations and its auto racing and Country Music Awards coverage on CBS.

While country music now accounts for a quarter of all radio stations in the U.S., growth of the genre has slowed in the last year.