Buyers Got ‘Sweetheart’ KOCE Deal

A group of business leaders in October offered the best of both worlds to cash-hungry college officials who put their television station up for sale over the summer: a bid comparable to other proposals that also would preserve Orange County’s only public TV channel.

But the final deal between the Coast Community College District and the KOCE-TV Foundation, outlined this month, has turned out to be less lucrative than it first appeared.

The sale of KOCE-TV Channel 50, billed as a $32-million deal, may be worth less than half that in today’s dollars, making it worth far less than other offers that the district board rejected.

After accepting the foundation’s bid, college officials agreed to sweeten the deal by subtracting $6.5 million from the price and to charge no interest on money the buyers are to pay over 30 years. In addition, no payments will be made for the first five years. These concessions mean the deal is worth half -- or less -- than the value of a cash sale at the same price, depending on how it is calculated, experts estimate.

“It’s one of the best sweetheart deals on the planet,” said John Casoria, a spokesman for Trinity Broadcasting Network, which pulled out of the bidding before final offers were submitted. “There’s no way in God’s green Earth we would have had that deal cut for us.”

Also disappointed are faculty members who hoped the college district would get top dollar for the station to offset state budget cuts. “This is exactly the deal we feared from the beginning,” said Kevin Parker, president of the academic senate of Orange Coast College. “That it would be an incredible deal in the name of keeping it a PBS station for the citizens of Orange County.”

Elliot Evers, who brokered the agreement but was not involved in final negotiations, acknowledged: “It’s a very generous deal from the buyer’s perspective. The district has community and political reasons to cut a very generous deal.”

George Brown and Jerry Patterson, the trustees involved in the negotiations, said they recognized that it was shaping up to be less lucrative than it first appeared as final terms were discussed. But they worried that selling to another bidder would bring lawsuits and that the license transfer could be tied up for several years before the Federal Communications Commission. As a result, they were reluctant to walk out and reopen bidding.

“They sort of had us over a barrel,” Brown said. “The public wanted this, and we wanted to keep it as public broadcasting. We weren’t in it for the money. It works for everybody.... That’s why we leaned over a little bit.”

Foundation officials also said the revised deal still benefits the district. “[The district] struck a hell of a deal,” said Joel Slutzky, one of the foundation directors and chairman of Odetics, an Anaheim communications and technology company. “They got a great package.”

The trustees decided to sell the station to help make up for continuing state budget cuts. They also said the station was costing the district $2 million to $3 million a year.

During the summer, a number of broadcasting organizations, many with religious affiliations, expressed interest in KOCE. Bids reached $40 million in the final round, but after the board disqualified several companies and others dropped out, only the foundation and a $25-million proposal from religious broadcaster Daystar remained.

At the same time, trustees faced enormous pressure to choose a buyer that would keep the PBS affiliation, almost regardless of price. That left one candidate -- the foundation. The foundation, which had been the fund-raising arm of the station, grew in power and prestige over the summer as Orange County business and civil leaders joined the cause.

Among them were UC Irvine Chancellor Ralph J. Cicerone; Rep. Loretta Sanchez (D-Garden Grove); former baseball commissioner and Olympics chief Peter Ueberroth; David Pyatt, chief executive of Allergan Inc.; Henry Samueli, chairman of Broadcom Corp.; and Dwight Decker, chief executive of Conexant Systems Inc.

At an Oct. 15 meeting that attracted an enthusiastic crowd of foundation supporters, trustees selected the foundation over competing bidders. They approved the final deal unanimously Dec. 10. The board plans to sign a definitive agreement to sell the station by Feb. 8 and file an application for a license transfer with the Federal Communications Commission by Feb. 29.

The foundation bid included $8 million down with the remaining $24 million to be paid over 10 years or more. The interest rate was set at 2% more than the London inter-bank offered rate, a benchmark used for rates globally.

But during negotiations on final terms, the deal changed in important ways. The price remained $32 million, and the foundation will still make the $8-million down payment. But the college district made three key concessions on the $24-million balance:

* The foundation will save millions by paying no interest and by waiting five years before making any payments. The deal calls for $17.5 million in annual payments of $500,000 during years six through 10 and $750,000 annually during years 11 through 30.

* $4 million will be forgiven because the college would have had to pay that sum had it selected another bidder, the two sides agreed. That payment would be necessary, they say, because the district would have to reimburse the Corp. for Public Broadcasting and PBS for grants and equipment.

* $2.5 million will be credited to the foundation for district telecourses and promotional spots the station will air over seven years.

Several experts said it is unusual for a deal to change so substantially after a bid is accepted.

“A 30-year, interest-free loan for $17.5 million is a pretty big benefit,” said Margaret Neale, a professor of organizational behavioral and dispute resolution at the Stanford University School of Business.

Tom Taulli, an adjunct professor of finance at USC’s Marshall School of Business and a principal of investment banking firm Bridgewater Capital in Newport Beach, estimated the current value of the $17.5 million in payments to be made by the foundation at $2 million to $5 million in today’s dollars. Adding the down payment and credited amounts raises the deal’s value to between $16.5 million and $19.5 million in today’s dollars.

Experts say that someone locking in a long-term deal should be paid for the risk -- otherwise the money might as well be invested in the safety of treasury bills.

“Considering this is not a guaranteed proposition, you should get a guarantee above what you could get risk-free.” Taulli said. “A lot can happen in the world in 30 years.”

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High finance

A nonprofit group that submitted the winning bid for Coast Community College District’s television station has negotiated a final deal less lucrative to the college. Key differences between the bid and final deal:

Original bid

Cash: $8 million

Balance: $24 million, to be paid with interest.

Total: $32 million

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Final deal

Cash: $8 million

Balance: $17.5 million, to be paid without interest over 30 years; no payments for first 5 years.

$4 million credited to the KOCE Foundation for costs the district says it would likely be paid if the station were sold to another bidder

$2.5 million to the KOCE Foundation for telecourses and promotional spots

Total: $32 million

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Source: Coast Community College District