Revised Offer Apparently Lower Than Comcast’s : Storer OKs Kohlberg Merger Plan

In a move that angered some of its shareholders, Storer Communications on Tuesday accepted an amended merger offer from the investment banking firm of Kohlberg, Kravis, Roberts that appears lower than a bid from Comcast, a Pennsylvania cable-TV operator.

At the same time, Storer granted KKR an option to buy some of its “crown jewel” cable or television station properties and a block of stock in a move apparently designed to thwart new offers for the Miami-based company.

Paul E. Tierney Jr., a dissident Storer shareholder who recently gained a seat on the company’s nine-member board, said in a telephone interview that he believed that Comcast’s offer was “worth about $4 a share more” than the KKR bid, but he was swayed by the legal opinion of Storer’s outside lawyers that the Comcast deal posed some adverse tax considerations and joined a unanimous vote accepting the KKR offer.

Under the terms of the amended merger agreement, KKR will pay $91 in cash for each share of Storer’s common stock plus one warrant to purchase common stock of the new company. Tierney said he estimated the value of the KKR bid at about $93, compared to a value of about $97 per share for the Comcast bid, which consisted of $83.50 in cash per share plus preferred stock and debt securities.

Some analysts objected more to Storer’s acceptance of a “poison pill” proviso than to the price.

“Nobody can attempt to make a higher bid,” said Gordon Crawford, a senior vice president at Capital Research, whose clients held as much as 10% of Storer’s shares until recently. “It is aggravating. (Storer Chairman) Peter Storer and his investment bankers are not looking after the best interests of their shareholders by putting obstacles in the way of higher bids,” Crawford said.

Storer executives said that, as part of the amended offer, KKR insisted on receiving an option to purchase certain Storer cable-TV systems for $897 million or three TV stations for $635 million. Storer refused Tuesday to identify which properties have been pledged.

“We are not being given much information,” said Paul Kagan, an industry consultant and investor based in Carmel. “I wish that they would have given it to Comcast because I think I would have gotten more money,” Kagan continued. “But am I going to sue for $3 (per share)?”

“Management did not take the highest price. I don’t know why,” said Mario Gabelli, chief investment officer of Gamco Investors in New York. Gabelli, however, expressed satisfaction with the profits that his firm will make from a stock that closed at $46.50 a share last Dec. 31.

At Comcast’s headquarters in Bala Cynwyd, Pa., Chief Financial Officer Julian Brodsky said the company had no immediate plans to challenge Storer’s decision or improve its offer in the face of the “lock-up options” that might place key Storer cable properties beyond Comcast’s reach. In its initial bid July 16, Comcast said it was primarily interested in Storer’s cable properties and intended to sell its seven TV stations.

Under the terms of the KKR offer, Storer Chairman Peter Storer will continue to serve as chief executive. He and company President Terry Lee will continue to serve on its board and will have the chance to hold stock. As a result, the two men decided to abstain from the final vote Monday, according to Abiah Church, Storer’s secretary and general counsel.

With their abstention, Church said, “I don’t think it’s fair to characterize (the vote) as a management coup.” The board held a “very, very long discussion; (there was) a lot of argument,” Church said, “but they all came to the same conclusion in the end. It was not a deal that was pushed through by any one group over the objection of another.”