Young Broadcasting Inc.
Young Broadcasting Inc.
Sales: $280.65 million (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: YBTVA
NAIC: 51312 Television Broadcasting
Young Broadcasting Inc. owns and operates 13 television stations and a television advertising sales firm, Adam Young Inc. Young Broadcasting’s station properties include six affiliates of American Broadcasting Companies, Inc. (ABC), four affiliates of CBS Inc., and two affiliates of the National Broadcasting Company, Inc. (NBC). One of the company’s stations, KCAL in Los Angeles, operates as an independent station. With the exception of KCAL and San Francisco’s KRON, Young Broadcasting’s television properties are located in smaller markets. The company’s stations include: WTEN in Albany, New York; WRIC in Richmond, Virginia; WATE in Knoxville, Tennessee; WBAY in Green Bay, Wisconsin; KWQC in Davenport, Iowa; WLNS in Lansing, Michigan; KELO in Sioux Falls, South Dakota; KLFY in Lafayette, Louisiana; WKBT in La Crosse, Wisconsin; and WTVO in Rockford, Illinois.
Father and son Adam and Vincent Young spent 15 years working together in the television industry before starting Young Broadcasting. In 1944, Adam Young formed his own company, Adam Young Inc., and began representing television stations to advertisers, selling airtime on the behalf of broadcasters. His son Vincent joined him in 1971, one year after Vincent had completed his studies at Southhampton College. The pair worked well together, selling airtime primarily for television stations serving the country’s smaller markets In 1980, Adam Young appointed his son president, but after several years Vincent began to pine for a more ambitious undertaking. Instead of assisting broadcasters in the operation of their businesses, he wanted to run his own stations. In 1986, he convinced his father to branch out into television station ownership, prompting the formation of a second company, Young Broadcasting.
The Youngs borrowed heavily to acquire their first two television stations, completing the purchases in September 1986. Both stations, WLNS and WKBT, were acquired from Backe Communications Inc., and both were CBS affiliates. WLNS, based in Lansing, Michigan, began operating in 1950. WKBT, located in La Crosse, Wisconsin, began operating in 1954. The Youngs added to their assets two years later with another CBS affiliate, acquiring KLFY, a Lafayette, Louisiana, station in May 1988. Acquired from Texoma Broadcasters, Inc., KLFY was the first television station in the Lafayette area, commencing operations in 1954. In September 1988, Young Broadcasting acquired Winnebago Television Corporation, giving the company an NBC affiliate, WTVO, located in Rockford, Illinois. The Youngs concluded the 1980s by adding to their burgeoning portfolio of properties, completing two more acquisitions in 1989. In June, WKRN, a Nashville, Tennessee, station was acquired from Knight-Ridder Broadcasting, Inc. Knight-Ridder Broadcasting sold Young Broadcasting its sixth station in October 1989, an Albany, New York, station with the call letters WTEN. Both WTEN and WKRN were affiliated with ABC.
Entering the 1990s, Young Broadcasting was supported by six stations, each, with the exception of Nashville-based WKRN, located in small markets. The company had spent approximately $245 million to acquire the six stations, incurring considerable debt to do so, which proved to be a troublesome drag on finances. By 1992, the six stations were generating roughly $30 million a year in cash flow, but were weighed down by $200 million in long-term debt. Vincent Young had paid dearly for his entry into station ownership, purchasing the stations at a time when market prices were high. Consequently, the company found itself facing an uncertain financial future during the early 1990s, unable to demonstrate acceptable profitability because of its substantial interest payments. To relieve the mounting financial pressures, Young devised a bold plan, one that caused a stir among industry observers. Not for the last time during the 1990s, Young Broadcasting was the object of debate and controversy, as the business press attempted to decipher the ambitious moves made by Vincent Young.
In May 1992, when Young Broadcasting’s annual revenues totaled $70 million, the company announced an agreement to pay approximately $400 million in cash for five television stations owned by Houston-based H&C Communications. The stations, each network affiliates, served markets in Houston, Daytona Beach-Orlando, Tucson, Des Moines, and San Antonio, generating combined annual revenues of $130 million. Once completed, Young Broadcasting would rank as the 17th largest television station group owner in the country, covering 6.1 percent of the nation’s television audience.
The acquisition, which would nearly triple the size of Young Broadcasting in terms of revenues, represented a mammoth deal for a financially strapped company, prompting analysts to wonder where Young would obtain the money to complete the deal. Young announced he planned to raise $100 million in a private equity placement, obtain $225 million in new bank debt, and gain the remaining $75 million in new junk debt. His plan hinged on borrowing heavily against the new stations, but Young was willing to take on further debt to ease the company’s cash flow problems. Compared to the late 1980s, the market prices for stations in the early 1990s were relatively low, enabling Young to dilute the high prices he had paid earlier by combining his six stations with the five owned by H&C Communications. As Young was cobbling together the financial means to complete the acquisition, however, the deal began to unravel. In June 1992, three of the company’s subordinated debt holders attempted to force Young Broadcasting into involuntary Chapter 11 bankruptcy. The company had failed to make payment on $7 million in interest and principal, which forced negotiations between Young Broadcasting and H&C Communications to stall. In the end, the deal collapsed, but Young would strike again and draw more national attention to his company.
Young shied away from the acquisition front for two years after the failure of the H&C Communications acquisition. He brokered his next deal the same month he completed an initial public offering of stock in November 1994, when Young Broadcasting debuted at $19 per share. The conversion to public ownership helped raise the capital for Young to add to his stable of television stations, leading to the acquisition of three stations from Nationwide Communications, Inc. WRIC, serving the Richmond, Virginia, market, joined the Young Broadcasting fold, as did another ABC affiliate, WATE, which served the Knoxville, Tennessee, market. The third station, WBAY, was an ABC affiliate as well, serving the Green Bay, Wisconsin, market.
1996 Acquisition of KCAL
With nine stations to its name, Young Broadcasting generated $122 million in revenues in 1995, but the company continued to lose money. A substantial amount of the cash flow generated by the stations was consumed by the company’s burdensome debt service, which hamstrung Young’s efforts to produce a profit. The massive debt taken on by the company, which totaled roughly $400 million by June 1996, did not spoil Young’s appetite for further acquisitions, however. He struck again in April 1996, acquiring NBC affiliate KWQC, located in Davenport, Iowa, from Broad Street Television. The following month, the company acquired the CBS affiliate KELO in Sioux Falls, South Dakota. Both acquisitions paled against Young’s third acquisition of the year, a mammoth deal that by far outstripped any acquisition made during the company’s first decade of existence. Once the transaction was concluded, Young Broadcasting’s annual revenues nearly doubled.
The acquisition prompted Forbes to refer to Young as “a crapshooter” in the magazine’s July 15, 1996 issue. One broadcasting analyst remarked, “Young is betting the ranch,” in the August 19, 1996 issue of Broadcasting & Cable, referring to the deal that again drew national attention toward Young. The television station in question was KCAL, owned by Walt Disney Company. Serving the Los Angeles market, KCAL was one of the few viable major-market independent stations in the nation, a valuable prize that attracted a host of suitors after Disney announced it was divesting the property. To the surprise of many industry observers, Young entered into the auction for KCAL, engaging in a bidding war that he ultimately won. Young outbid rivals such as Granite Broadcasting, Argyle Communications, and a group of investors led by basketball star Magic Johnson, agreeing to pay $368 million for the independent station.
- Young Broadcasting is formed; company acquires two CBS television affiliates, WLNS and WKBT.
- CBS affiliate KLFY and NBC affiliate WTVO are acquired.
- Two ABC affiliates, WTEN and WKRN, are acquired.
- A deal to acquire five television stations is scuttled.
- Young Broadcasting debuts as a publicly traded company.
- Los Angeles-based independent station KCAL is acquired for $368 million.
- KRON, an NBC affiliate based in San Francisco, is acquired for $737 million.
The acquisition of KCAL represented a major move on Young’s part, adding the largest independent station in the second largest television market in terms of population. In the wake of the acquisition, which was completed in December 1996, Young was forced to restructure KCAL. The station had been used by Disney to display the entertainment company’s sports and promotion efforts, which required an extravagant budget. “The way Disney ran the station and the way any of the groups that were bidding would run it are very different,” Young explained in a May 20, 1996 interview with MEDIA-WEEK. ‘They [Disney] were building their image,” he added, “spending so many millions of dollars on things like promotion, that there are significant savings just from cutting costs on a line-by-line basis.” Young planned to reduce the station’s annual expenses by $21 million and to renegotiate programming contracts for an additional savings of nearly $12 million, but there was no escaping the considerable cost of the acquisition. Much of the money required to complete the purchase was borrowed, lifting the company’s debt load to more than $650 million as it entered the late 1990s.
Young’s penchant for deal-making took a different twist not long after the purchase of KCAL was completed. In 1998, the company was put up for sale, offered at an estimated price of $1.9 billion. By September 1998, however, the prospect of a sale had been formally quashed. In the aftermath of a downturn suffered by the country’s financial markets, the company took itself off the auction block, citing deteriorating market conditions as the reason for withdrawing from the sale. Young Broadcasting’s chief financial officer announced that management believed any buyer would face extreme difficulty arranging the financing to complete the deal, but industry analysts offered another reason. Most of the bidders, the pundits claimed, had withdrawn their interest before the market downturn, citing instead the substantial costs required to make KCAL a competitive and profitable station. Although Young Broadcasting had canceled plans for its sale, the company exited 1998 exploring other strategic alternatives, including a possible merger with another television company.
KRON Acquisition: 2000
For Young Broadcasting, the 1990s ended with another spectacular transaction concluded on the acquisition front. In December 1999, Young eclipsed the bravado of the KCAL acquisition by winning the auction for KRON, the NBC affiliate in San Francisco. Young paid $737 million for the station, winning a bidding war against NBC that soon erupted into a contentious battle of wills. After losing the auction, NBC demanded Young Broadcasting pay a $10 million annual fee to maintain its affiliation with the network. Young refused, which meant KRON was scheduled to become an independent station when its contract with NBC expired on December 31, 2001. Young Broadcasting’s stock plunged 45 percent after NBC announced it was handing its network affiliation to San Jose-based KNTV, but Young and his management team remained unruffled. Industry observers speculated that Young was interested in selling the company, a supposition that Young himself promoted. “As this industry may continue to consolidate, it’s nice having the prettiest girls at the dance,” Young said in a February 12, 2001 interview with Electronic Media, referring to KCAL and KRON.
As Young Broadcasting entered the 21st century, the fate of the company was a topic of considerable debate. Much of the attention focused on KRON’s expected new role as an independent and on the station’s need to replace the network programming it had relied on for years. There was a possibility that the relationship between KRON and NBC could be restored, a prospect that Young hinted at. The larger question about the company’s future centered on Young’s repeated claims that he was willing to sell the company. Analysts in early 2001 were expecting such a move, but no one could accurately predict what Young’s next deal might be.
Young Broadcasting of Louisiana, Inc.; Young Broadcasting of Lansing, Inc.; Young Broadcasting of La Crosse, Inc.; Young Broadcasting of Albany, Inc.; Young Broadcasting of Nashville, Inc.; Young Broadcasting of Green Bay, Inc.; Young Broadcasting of Knoxville, Inc.; Young Broadcasting of Richmond, Inc.; Young Broadcasting of Davenport, Inc.; Young Broadcasting of Sioux Falls, Inc.; Young Broadcasting of Rapid City, Inc.; Young Broadcasting of Los Angeles, Inc.; YBT, Inc.; LAT, Inc.; YBK, Inc.; Fidelity Television, Inc.; WKRN, G.P.; KLFY, L.P.; WATE, G.P.; Adam Young Inc.
Sinclair Broadcast Group, Inc.; Hubbard Broadcasting Inc.; Hearst-Argyle Television, Inc.; Granite Broadcasting Corporation.
Chatzky, Jean Sherman, “Betting the Company,” Forbes, August 3, 1992, p. 82.
Foisie, Geoffrey, “Young Proposes Five-Station Buy,” Broadcasting, May 25, 1992, p. 5.
Gimein, Mark, “L.A.’s Newest Player,” MEDIAWEEK, May 20,1996, p. 12.
Grego, Melissa, “Young Looks at the Bright Side,” Broadcasting & Cable, February 21, 2000, p. 12.
Lacter, Mark, “The Lone Warrior,” Forbes, February 19, 2001, p. 109.
McClellan, Steve, “Young Takes Down ‘For Sale’ Sign,” Broadcasting & Cable, September 14, 1998, p. 12.
——, “Young’s High-Stakes Bid for KCAL; Company Chairman Puts It All on Line to Finance,” Broadcasting & Cable, August 19,1996, p. 37.
Mermigas, Diane, “Young Broadcasting Looks Restless to Sell,” Electronic Media, February 12, 2001, p. 3.
Rudnitsky, Howard, “Pushing the Envelope,” Forbes, July 15, 1996, p. 74.
“Young Hopes to Raise $165 Million,” Broadcasting & Cable, September 23, 1996, p. 34.
—Jeffrey L. Covell