Lear, Perenchio Make $453-Million Offer for Parent of Detroit News

Los Angeles entertainment executives Norman Lear and A. Jerrold Perenchio launched an unfriendly, $453-million offer Monday to acquire Detroit-based Evening News Assn., publisher of the Detroit News and owner of several television stations. Analysts viewed the offer, which was quickly rejected by the company, as the opening salvo in what may become the latest media takeover war.

Lear and Perenchio would not detail plans for the company, but their prospectus suggested that, if successful, they might sell several of the company’s assets--including the Detroit News--to pay off bank debts and meet federal regulations.

Some Wall Street analysts speculated that Lear and Perenchio might reconfigure the closely held company and join such competitors as Australian publisher Rupert Murdoch and Tribune Co. of Chicago in trying to develop an independent fourth network of commercial TV stations.

Proceeds of Sale

Lear and Perenchio said a third of the funds for the offer will come from proceeds of the sale last month of their production company, Los Angeles-based Embassy Communications, to Coca-Cola for $485 million.

Evening News Assn. President and Chairman Peter B. Clark, great-grandson of founder James E. Scripps and great-grandnephew of newspaper baron E. W. Scripps, issued a two-sentence response to the tender offer: “The Evening News Assn. is not for sale. We will vigorously oppose any takeover attempt, and we expect to succeed.�

The bid comes amid rumors of unrest among some members of the controlling Scripps family unhappy with the company’s paltry earnings in recent years. Already, shareholders with 20% of the stock are reportedly looking to sell.

Could Bring Other Bids

Wall Street analysts said the bid could provoke other offers for the company, which owns television stations in Washington; Austin, Tex.; Tucson; Oklahoma City, and Mobile, Ala., and the Desert Sun, a newspaper in Palm Springs.

The Lear-Perenchio price of $1,000 a share, the analysts said, places the company’s value far below recent Wall Street estimates. In an internal study for an Evening News shareholder, industry analyst John Morton of Lynch, Jones & Ryan earlier this year estimated that the company could fetch $1,400 a share, and Carmel media analyst Paul Kagan, an Evening News shareholder, valued the stock at $2,000 a share. (The company has 452,000 shares outstanding, owned by 333 shareholders, the great majority members of the Scripps family.)

“The offer is characteristically low, as you might expect in a situation that might become a bidding war,� said Kagan, who speculated that Lear and Perenchio purposely bid low in anticipation of other bids and are prepared to raise their offer later. “This puts a floor underneath the stock.�

Evening News Assn. was founded by a wing of the Scripps newspaper family in 1873 and is one of the last family-controlled companies that owns a major U.S. newspaper.

Run by heirs of the founding Scripps family, Evening News Assn. uses profits from its television operations to fund a costly newspaper war against the Detroit Free Press, a morning paper owned by the well-financed Knight-Ridder Newspapers. Analysts said both Detroit dailies currently lose money--Morton estimated the News’ pretax loss at $19 million in 1984--and some expect the losses to continue unless one of the papers folds.

Overall, Evening News Assn. made just $13.5 million in 1984 on revenue of $310 million, a return of just 4%, largely due to the losses of the Detroit News.

Several Ways to Fight

Evening News management could fight the offer several ways: buy out unhappy shareholders itself, seek a friendly “white knight� buyer, sell shares to the public at a competitive price, make a counter offer at a higher price or seek to block the offer in court.

Some of these routes are made difficult, however, by unrest among the heirs. The Lear-Perenchio offer probably was caused, analysts speculated, by the fourth- and fifth-generation Scripps heirs who have publicly expressed their disdain about current results of the company.

Last year, the company unsuccessfully sued to block shareholders from selling shares to a Georgia businessman and to Booth American Inc., a small media company controlled by distant Scripps cousins.

Dissident shareholders are currently trying to put as much as 25% of the stock up for sale.

“It all depends on family solidarity,� Morton said. “And although Peter Clark has said that most of the family is solid, as we have learned over and over in the recent past, if the bidding gets high enough, family solidarity is a flimsy thing.�

The Lear-Perenchio offer has the attraction of being all cash. Through a company founded last week called L. P. Media, Lear and Perenchio will pay $1,000 a share for any number of shares offered until Aug. 23.

Perenchio said in a prepared statement that the offer gives shareholders “the opportunity to receive $1,000 in cash per share as quickly as possible under the federal and state law.�

“We are willing,� Perenchio also said, “to discuss the offer with the company’s board of directors, and our preference is for a mutually agreed transaction, but our offer is not conditioned on reaching any agreement with the board.�

The prospectus outlines several possible operating strategies and notes that Federal Communications Commission regulations on cross-ownership of broadcast stations and newspapers in the same city would require the sale of either two Detroit radio stations or the Detroit News. The current owners are allowed to keep both because they owned them before the regulations were imposed.

Most analysts Monday speculated that Perenchio and Lear would most like to keep the Washington television station, which is rated No. 1 in the nation’s capital, as well as perhaps the station in Austin and the newspaper in Palm Springs.

Any shares purchased would be placed in a voting trust controlled by G. William Miller, former Treasury secretary and chairman of the Federal Reserve. This arrangement would allow L. P. Media to begin acquiring Evening News shares immediately, even before winning approval of its ownership application of Evening News from the FCC. The FCC hence must also first approve the voting trust arrangement.

According to the prospectus, Perenchio became interested in the company last January when he received a copy of a confidential five-year earnings forecast from a top Evening News executive. He enlisted Lear’s support for the offer in June after receiving financing commitments from bankers. Lear owns 47.5% of L. P. Media while Perenchio holds 52.5%.

Financing Terms

Under current terms, Lear and Perenchio each would invest $62.5 million of their own money in the offer, with another $375 million coming from bank loans.

One possible obstacle to the deal is a state law designed to thwart unfriendly takeovers of Michigan companies that imposes strict restrictions on how companies can acquire stock through tender offers. The Lear-Perenchio combine said it is filing suit in federal court in Michigan seeking to have the law ruled unconstitutional and inapplicable.

Lear and Perenchio have done business together before, and impressively. “These two men are as successful as anyone I know,� Kagan said. “They understand value.�

Lear, creator of such television situation comedies as “All in the Family,� “Sanford & Son� and “The Jeffersons,� is one of Hollywood’s most influential writers, producers and directors.

Perenchio is known as one of its consumate deal makers and promoters. THE TARGET

Evening News Assn. is a Detroit-based, family-owned media company founded by James E. Scripps in 1873.

Newspapers: Detroit News (daily circulation 666,949). Desert Sun, Palm Springs (30,971). Eight small dailies and weeklies in California and New Jersey.

TV: WDVM-TV, Washington D.C.; KOLD-TV, Tucson; WALA-TV, Mobile; KVUE-TV, Austin and KTVY-TV, Oklahoma City. Radio: WWJ-AM and WJOI-FM, Detroit.

Financial: Year Year In Millions ended ended Dec. 30, 1984 Jan. 1, 1984 Operating revenues $310.0 $272.9 Net income 12.9 5.5 Total assets 177.4 166.7 Total liabilities 63.4 53.3 Total capital 113.9 113.4