CBS to Acquire ‘Oprah’ Syndicator King World

A year after hiring an investment banker to look for a buyer, King World Productions Inc., one of the last independent entertainment companies standing after a decade of consolidation, agreed Thursday to be acquired by CBS Corp. in a stock deal valued at $2.5 billion.

The deal ends the long-standing mystery in Hollywood about whether the entrepreneurial King brothers would ever relinquish control of the Los Angeles company founded by their father in the early ‘70s with rights to “The Little Rascals.” King World Chairman Roger King and Vice Chairman and Chief Executive Michael King have come close to selling twice in the last four years--only to see their stock drag behind the market as changes in federal rules and industry consolidation hurt the syndication business.

The deal would catapult CBS, also largely left behind in the industry’s consolidation, into the major leagues of the lucrative syndication business with hits such as “Wheel of Fortune,” “Jeopardy!” and “The Oprah Winfrey Show.”

Although CBS’ syndication arm, Eyemark Entertainment, has performed well in selling reruns of programs owned by the network, it has not developed original productions that have been big moneymakers, as King World has with “Hollywood Squares” and “Inside Edition.”

Analysts say King World’s record of success could raise the value of CBS’ station group, which under-performs other networks of like size. ABC’s station group, for instance, has been strongly helped by blockbusters such as “Oprah,” which builds viewership leading into its evening news, and “Wheel” and “Jeopardy!” which bring audiences to prime time.

Some CBS network affiliates speculated Thursday that CBS President and Chief Executive Mel Karmazin would eventually migrate the King World shows that have propped up ABC to CBS.

Karmazin dismissed the idea, saying he’s happy to make money from selling programming to his rivals.

ABC has rights to air “Wheel” and “Jeopardy!” through 2005 and “Oprah” through 2002.

CBS will have to deal with the uncertainties surrounding whether Oprah Winfrey will continue to renew her contract. Winfrey, whose talk show accounts for about 45% of King World’s $210 million in annual cash flow, renewed her contract in September through 2002, while ABC has committed to airing the two game shows through 2005.

Karmazin did not directly address how he would persuade Winfrey to re-up again. “When I spoke with her earlier this week, I did suck up big time,” he said. “Anything she’d ever want to do for our company, I’d be proud to have her.”

The acquisition, which must be approved by shareholders and federal regulators, would leave the King family and the star of their syndication empire with major stakes in CBS. Roger, Michael and other members of the King family propose to convert their 18% share of King World into a 1.8% interest in CBS, a share worth more than $500 million on Thursday. Winfrey would convert her King World shares into roughly 0.5% of CBS.

That gives Oprah and the Kings a larger stake in CBS than that held by Karmazin, who controls slightly less than 2% of the company’s stock as a result of the 1997 sale of his Infinity Broadcasting radio group.

Under the transaction, each King World shareholder will receive 0.81 share of CBS, which closed Thursday at $40.12, down 69 cents, on the New York Stock Exchange. Based on that closing price, King World is worth $32.40 a share in the deal. King World stock closed at $31.13 Thursday on the NYSE.

Though the stock has risen briskly since news of the negotiations surfaced two weeks ago, King World shares have lagged the S&P; 500 for several years, up 87% since mid-1993, compared with a gain of 187% over that time by the S&P.;

King World has disappointed Wall Street because of its inability to grow or sell the company as the entertainment landscape shifted, squeezing independent syndicators. New networks such as WB, UPN and Fox reduced the number of available time periods for companies such as King World. Changes in federal rules enabled stations to run repeats of network programs in time periods previously slotted for syndication and to own the programs on their air, reducing the real estate available to outside suppliers.

Sources say that only the brilliant salesmanship of Roger King enabled the company to pull down enormous licensing fees from Karmazin for “Hollywood Squares.” They say he got the best of Karmazin because CBS was virtually the only place with vacancies to launch the show.

The King brothers’ reluctance to sell also hurt their stock. They were close to a sale in 1995 to Turner Broadcasting and later to New World Entertainment. But the Kings’ unwillingness to give up control and a tendency to push for a higher price busted those deals.

Sources say King World would have to pay CBS a steep breakup fee of more than the standard 3% of the deal’s value, or more than $75 million, to back out.

King World has also been penalized by investors for stockpiling cash rather than investing it for higher returns. The company has some $900 million in cash on its books, which Karmazin promised to use to buy radio and television stations.

Karmazin said CBS had signed Roger and Michael King to long-term contracts. Analysts and industry executives Thursday questioned whether the King brothers, who have a reputation as wild partyers and free spenders, will mesh with CBS’ corporate culture. “This isn’t the military,” Karmazin said, adding that CBS executive titles for the Kings hadn’t been determined. The brothers will report to CBS Television chief Leslie Moonves.

Analysts estimated cost savings in the neighborhood of $50 million should the two syndication operations merge. While television syndicators speculated Thursday that it would be inefficient to have two sales operations competing against each other for time slots on television stations, such internal competition has been a key to Karmazin’s operating philosophy in radio, where multiple stations owned by CBS in a market compete against each other for advertising dollars.