Storer, Wometco, Gillett & New World: overview

Overview

This profile considers Storer, Wometco and Gillett, broadcast and cable tv operators whose assets have been absorbed by TCI, Comcast and Murdoch.

It covers –

• introduction
• Wometco
• Storer
• Gillett
• Perelman and New World
• studies

Introduction

The history of Storer, Wometco and Gillett reflects the trajectory of US broadcasting conglomerates (eg the fate of NBC-RCA, CBS, Westinghouse and Cooke) and the vicissitudes of groups whose expansion was based on large-scale borrowing from banks or on junk bonds. Difficulties with junk finance are evident in the collapse of Ralph Ingersoll's newspaper group - absorbed by the Journal Register - and the underwhelming performance of Primedia, the magazine group created by junk-bond vendor Kohlberg Kravis Roberts (KKR).

Wometco

Wometco was founded in 1926 as Wolfson-Meyers Theater Co. It expanded from cinema operation in the US South East and Caribbean into property development, vending machines, billboards, bottling (eg Pepsi and Coca-Cola franches) and television stations. In 1960 it acquired the Miami Seaquarium; during the seventies it moved into cable television.

In 1984 it succumbed to a takeover under the auspices of KKR. Mitchell Wolfson, heir of one of the founders, emulated James Fairfax by spending the proceeds on art - establishing the South's preeminent decorative arts museum.

Wometco's broadcast and cable operations were offloaded by KKR; bottling and other operations went to different buyers, with the name and some entertainment assets subsequently being sold to Wometco management.

Storer

Storer was founded in Ohio during 1927 as Storer Broadcasting, Inc. It leveraged success in non-metropolitan radio broadcasting to build a chain of television stations, beginning with three of the licenses (WJBK, WAGA and WSPD) granted by the FCC before its 1948 'freeze' in 1948.

By 1961 Storer was the nation's sixth-largest tv broadcaster - exceeded in size only by the three networks (ABC, CBS, and NBC), Metropolitan Broadcasting (later Metromedia) and Westinghouse.

In 1965 Storer acquired a controlling stake in the Boston Gardens sports arena and 55% of Northeast Airlines (launched in 1933 as Central Vermont Airways under the ownship of the Central Vermont Railroad company). Northeast had been acquired by former RKO owner Howard Hughes, then owner of TWA, in 1962.

Hughes declined to support the loss-making Northeast after disagreements with the US Civil Aviation Board, transferring his interests to a trustee. The trustee sold the Hughes stake (which included a US$23 million loan) to Storer, which was flush with cash and faced regulatory constraints on expanding its television broadcasting interests.

Relaxation of those constraints and poor performance by the airline saw Storer offload Northeast in 1972 by merging the line with Delta Airlines. It progressively sold its radio stations, investing the proceeds in cable television. In contrast to competitors such as TCI, Storer tended to acquire franchises and build cable sytems rather than buy existing operations.

In 1983 the group's name was changed to Storer Communications (SCI). At that time it owned and operated seven television stations (inc WJBK Detroit, WJW Cleveland, WITI Milwaukee, WAGA Atlanta
and WSPD Toledo), with franchises to provide cable service to over 500 communities in 18 US states.

Storer's market price significantly lagged the cost of its assets and the group succumbed to a US$2.43 billion takeover under the auspices of KKR and George Gillett. Key stations were sold to Murdoch's News in 1997 (after acquisition by New World Communications following a crisis in 1992), building the Fox Network.

Gillett

George Gillett moved from McKinsey to become business manager and part-owner of the Miami Dolphins. He invested in the Harlem Globetrotters in 1967 in association with John Kluge. In 1978 he acquired Packerland Packing, a major US meat processor, and launched Gillett Communications by buying three small television stations. Three years later he bought the WSM television station in Nashville.

In 1984 Gillett acquired Post Corporation's eight television stations, 22 newspapers and associated plant; the non-broadcast assets were sold to Thomson and other buyers. In the following year he acquired Vail Associates' Vail and Beaver Creek ski resorts, going on to acquire Storer in 1987, using KKR paper, after the FCC lifted restrictions on ownership.

The group melted down in 1992 as higher interest rates penalised junk bond issuers. Gillett's media arm was reorganised as New World Communications under the control of Ronald Perelman.

Gillett recovered enough to repurchase Packerland in 1995. In 1996 he formed Booth Creek Ski Holdings Inc., acquiring or building a range of ski resorts in New Hampshire, California, Washington and Wyoming. From 1997 he extended his meat interests by building Corporate Brand Foods America (which included Iowa Ham, Jordan Meats and Wright Bacon). Those interests were acquired by Iowa Beef Processors for US$550 million.

Gillett and Hicks Muse Tate & Furst (parent of LIN TV and Capstar) bought ConAgra's beef operations - Swift & Co - for US$1.4 billion in 2001. During the preceding year he'd bought 80% of the Montreal Canadiens hockey team and Molson arena for US$185 million.

Perelman and New World Communications

Ronald Perelman gained an MBA from the Wharton School in 1966 and in 1978 borrowed US$1.9 million to buy about a third of a jewelery distributor and retailer, the same mechanism used by Christopher Skase as the basis of Qintex in the 1980s.

In 1980 he acquired MacAndrews & Forbes for US$45 million, using US$33 million in junk bonds in an unsuccessful bid for toymaker Milton Bradley. Perelman had more success with bids for Consolidated Cigars, Movie Labs and Video Corporation of America using US$140 million junk bonds marketed by Drexel Burnham. Technicolor, acquired in 1983 for US$105 million, was rationalized before sale to UK media group Carlton in 1988.

Perelman took MacAndrews & Forbes private in an LBO using US$95 million bonds from Drexel Burnham. In 1985 he acquired 38% of grocery chain Pantry Pride for US$60 million. Pantry Pride subsequently acquired Revlon for around US$2 billion in cash and assumption of some US$1 billion debt, recouped by sale of Revlon's health care operations for US$1.4 billion. In 1987 it spent US$500 million to buy cosmetics firms such as Max Factor.

Perelman's New World Entertainment acquired the Marvel comics group, subsequently sold to the entrepreneur for US$82 million before being floated. At its peak Marvel's market value was around US$3 billion but Perelman lost control in 1996 - amid an unpleasant dispute with fellow raider Carl Icahn - when Marvel succumbed to debt from the LBO and injudicious expansion. Perelman is, however, alleged to have received over US$280 million during the course of his involvement with Marvel.

New World acquired the Storer-Gillett broadcast interests - rebadged as New World Communications - as part of reorganisation after 1992. Rupert Murdoch's News group paid US$500 million for a 20% stake in New World Communications and affiliate agreements from its 12 current network affiliates. In 1997 News bought the remaining 80%.

Studies

There has been no major study of Wometco, Storer or Gillett.

For KKR see Connie Bruck's The Predators' Ball: The Inside Story of Drexel Burnham & the Rise of the Junk Bond Raiders (New York: Penguin 1989) and Barbarians at the Gate: The Fall of RJR Nabisco (New York: HarperBusiness 1991) by Bryan Burrough & John Helyar.

The New Financial Capitalists: Kohlberg Kravis Roberts and the Creation of Corporate Value (Cambridge: Cambridge Uni Press 1998) by George Baker & George Smith is an authorised, laudatory and - to us - unconvincing, study. It might be read in conjunction with George Anders' Merchants of Debt: KKR and the Mortgaging of American Business (New York: Basic Books 1992), superior to Sarah Bartlett's The Money Machine: How KKR Manufactured Power & Profits (New York: Warner 1991).

For Perelman as an asset stripper and raider see Bruck, Den of Thieves (New York: Touchstone 1991) by James Stewart and glitzy Testosterone, Inc - Tales of CEOs Gone Wild (New York: Simon & Schuster 2005) by Christopher Byron. Insights are offered by Dan Raviv's Comic Wars: How Two Tycoons Battled Over The Marvel Comics Empire And Both Lost (New York: Broadway 2002) and by Rita Ricardo-Campbell's Resisting Hostile Takeovers - The Case of Gillette (New York: Praeger 1997).