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KHON Fox 2
owner agrees to
buy KGMB-9

The $562.5 million multistation
deal may require the sale of
one of the 2 local affiliates

By Russ Lynch
Star-Bulletin

The Indiana owner of Honolulu's KHON Fox 2 said today it has agreed to buy the CBS affiliate in Hawaii, KGMB-9, but the company may have to sell one of the two stations to comply with federal laws.

The sale of KGMB and its two satellite stations on the neighbor islands is part of Emmis Communications Corp.'s $562.5 million purchase of 15 stations from Lee Enterprises Inc.

Emmis said acquiring KGMB will require special approval from the Federal Communications Commission. Current FCC rules bar single ownership of two separate network affiliates in one market, although station owners have petitioned the FCC to ease up on that rule.

"Obviously we will probably have to sell one of the (Honolulu) stations, or put them in trusts, although these rules are so fluid you never know. Ideally we'd like to operate both stations in Honolulu," Jeff Smulyan, Emmis chairman and chief executive officer, told securities analysts in a conference call early today.

KGMB is one of eight network stations across the country that Lee Enterprises has agreed to sell to Emmis. The deal also includes Lee's seven satellite stations that carry the network stations' programs to outlying areas. Those satellites include KGMD-9 in Hilo and KGMV-3 in Wailuku.

Davenport, Iowa-based Lee, which has owned KGMB for 23 years, said in early March that it wanted to sell all of its TV stations and get out of broadcasting, to concentrate on its publishing and online businesses.

The transaction announced today is not expected to close for another 90 to 100 days, as the companies seek various approvals including from the networks and the FCC, said Kate Healey, a spokeswoman for Indianapolis-based Emmis.

Emmis officials did not say which of the Honolulu stations the company might sell if forced to do so by the regulators. If it sells KHON, it will be the station's sixth change of ownership since 1995.

KHON and KGMB are competitors with locally produced news programs. KHON's top-rated show, anchored by Joe Moore, goes up against KGMB's program, anchored by Russell Shimooka and Jade Moon, at 6 p.m. and 10 p.m.

KGMB referred calls to parent Lee Enterprises where spokesman Dan Hayes said there has been no word yet on how the Honolulu stations will be affected. He said Emmis CEO Smulyan "told our people they simply haven't addressed that question fully."

KHON employs 95 and KGMB has 100 workers.

KGMB was acquired by Honolulu businessman Cec Heftel in 1965. But Heftel, launching a successful bid for Congress, agreed in September 1976 to sell it to Lee, in a deal that closed in 1977.

Bill Spellman, a former executive of Emmis-owned stations in Sacramento who took over from Kent Baker last month as KHON's general manager, said Emmis would like to own both stations, "but it is up to the FCC under current duopoly rules."

Asked what might happen to programming if one company owned both Honolulu stations, Spellman said: "It's way too early to answer any of that."

Emmis reportedly had a rival bidder for the stations, New York-based Hearst-Argyle Television Inc. As owner of Honolulu KITV-4, the local ABC affiliate, Hearst-Argyle also would have had to get an exemption from the FCC to own a station carrying a rival network.

Emmis said that in addition to KGMB, it intends to buy Lee's other CBS affiliates, in Oregon, New Mexico and Nebraska; three Lee-owned NBC stations, one in West Virginia and two in Kansas; and Lee's sole ABC affiliate, a station in Arizona.

Emmis said the stations will strengthen its TV business -- now consisting of five Fox affiliates, one CBS station and one WB affiliate -- enough to allow it to run its radio stations as a separate business. Emmis owns 15 radio stations, mostly in the nation's largest markets, and said today it has $1 billion in funding to buy more.

"For months, Emmis has been exploring the option of creating a television entity large enough to stand on its own," Smulyan said in a statement issued early today. "The Lee portfolio represents an excellent opportunity to do just that, with attractive properties that offer a strong upside."

Emmis shares fell $10.06, or 23 percent, to close at $33.50 in Nasdaq trading. Analysts said the shares fell in part because investors were expecting Emmis to acquire radio stations, and Emmis's expertise is in radio. Lee shares rose 31 cents to $21.56 on the New York Stock Exchange.

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Bloomberg News contributed to this report.