McCaw Deals Seen as Effort to Put Pressure on Lin
McCaw Cellular Communications Tuesday announced a pair of billion-dollar-plus cellular telephone deals apparently designed to increase pressure on Lin Broadcasting to agree to its hostile takeover bid.
Kirkland, Wash.-based McCaw said it agreed buy out Metromedia Inc.’s interest in a New York cellular telephone system for $1.9 billion. To help finance that purchase, McCaw said it reached a separate agreement to sell its interest in several Southeastern cellular systems to Contel Corp. for $1.3 billion in cash.
The New York acquisition hinges on whether Lin Broadcasting, which owns 45% of the franchise, exercises its right to buy Metromedia’s interest by matching McCaw’s offer. Some analysts said the McCaw proposal was another attempt to put more pressure on New York-based Lin, which McCaw has been aggressively pursuing since June with a $5.8-billion takeover bid.
“This demonstrates the seriousness with which McCaw is going after Lin,” said John Reddan, an analyst with the investment firm Moran & Associates Inc. in Greenwich, Conn.
Reddan said McCaw is trying to establish a market value for Lin’s New York assets and is “calling Lin’s bluff” on its stance that the overall company is worth more than the $110-a-share, or $5.8 billion, offered by McCaw. McCaw’s offer for the 45.7% Metromedia interest equals $275 per potential customer, or what is known in the cellular industry as a “pop.” McCaw’s bid for all of Lin is equal to $250 per pop, Reddan said.
As a result, he said, if Lin doesn’t match McCaw’s offer for Metromedia’s share of its New York partnership, Lin can’t credibly argue that the company as a whole is worth more than the McCaw offer.
Moreover, Lin can’t match McCaw’s offer “without crippling” its proposed merger with BellSouth Corp., said Thomas W. Friedberg, a Seattle-based analyst for the investment firm Piper Jaffray & Hopwood.
Advantage Seen for McCaw
In a move to thwart McCaw’s hostile bid, Lin in September proposed merging its cellular properties with those of Atlanta-based BellSouth, along with distributing a special $20-a-share dividend to all of its shareholders. As part of the plan, Lin also said it would go ahead with a spinoff of its seven televisions into a separate company.
But McCaw now has the advantage in the battle for Lin, Friedberg said. If Lin buys out Metromedia and still pays the proposed dividend, he said, the merged Lin-BellSouth organization would likely have far more debt per pop than McCaw, he said.
On the other hand, Friedberg said, if McCaw acquires Metromedia’s stake in the New York cellular venture, Lin probably wouldn’t be able to run the operation as profitably.
Lin Vice President Michael Plouf said his company doesn’t see McCaw’s maneuvers “as being a negative development at all.” The company has 45 days to decide whether it will buy the Metromedia stake, he said, but “the prospect of owning 90% (of the New York venture) is very attractive.” Lin previously tried to force Metromedia to sell its interests in New York and Philadelphia. But a New York state court ruled that Lin has only the right of first refusal if Metromedia decided to sell its stake and could not force a deal.
Reddan said he believes that McCaw will increase its cash offer for Lin to about $120 a share. But in agreeing to sell its properties in the Southeast to Contel, McCaw has established values for BellSouth’s contribution to the proposed merger with Lin because the Contel properties are in cities where BellSouth also has cellular interests. That will give Lin’s holders a basis to compare the proposed BellSouth merger to whatever cash price McCaw offers, he said.
McCaw has also eliminated a potential rival for Lin in coming to terms with Atlanta-based Contel, Reddan asserted, because Contel threatened to bid for Lin if McCaw didn’t make it a partner in the raid on Lin. Under the agreement, Contel would acquire McCaw’s cellular interests in Memphis, Nashville and other Tennessee cities; Louisville and Lexington, Ky., and in Birmingham and four other Alabama cities. The $1.3-billion price equals $205 per pop, Contel said.
