Rupert Murdoch's News Corp. (NYSE:NWS), owner of the Fox Television Network, announced Monday that it will acquire Chris-Craft (NYSE:CCN) and subsidiaries for about $5.35 billion, about $2.13 billion in cash and approximately 73 million American depositary receipts representing 292 million News Corp. preferred shares. News Corp. will buy out Chris-Craft's 80%-owned BHC Communications (AMEX:BHC) subsidiary and BHC's 57.9%-owned United Television Inc. (NASDAQ:UTVI) subsidiary. Shares in Chris-Craft jumped 14, or 23%, to 76 in Instinet pre-market trading Monday.

Under the terms of the deal, Chris-Craft holders have three options - they can choose to get $34 in cash and 1.1591 News Corp. preferred American depositary receipts, or they can choose to get $85 in cash, or 1.9318 preferred ADRs. News Corp. will also buy BHC Communications Inc. for $66 in cash and 2.2278 preferred ADRs for each BHC share and it will buy United Television Inc. for $60 in cash and 2.0253 preferred ADRs for each United Television shares. News Corp.'s board has already approved the deal.

News Corp. took a look at purchasing Chris-Craft last November, but shied away saying the price was too high. Since then, the solid growth in its stock has cut the number of shares it would need to issue to cover the acquisition almost in half. News Corp.'s ADRs are up over 89% in the past 52 weeks, making it solid currency for acquisitions. The company's Australian shares have risen 44% over the same period to A$21.30.

The deal represents a 37% premium to Chris-Craft's closing share price on Friday of 62. Combined, the companies will have estimated cash flow of $1.2 billion annually. News Corp. expects the transaction to be immediately accretive to News Corp. and Fox Entertainment Group earnings. Chris-Craft shares dropped 8 and trading was halted on Friday after Viacom announced that all talks with Chris-Craft were off. Shares in News Corp. were halted in Australia last week pending the deal announcement.

Chris-Craft will add 10 stations to News Corp.'s 25, including creating duoplolies for News Corp. in prime markets such as New York, Los Angeles, Phoenix and Salt Lake City. Chris-Craft's San Francisco station is a welcome addition to News Corp., representing one of the few top markets where News Corp. doesn't already have a presence. News Corp. will have to get rid of at least two stations to remain under the Federal Communication Commission's cap on total viewers reached.

News Corp. already covers about 34.5% of the U.S. through its current stations, creating a regulatory question mark with the addition of Chris-Craft, which reaches 22%. News Corp. has been lobbying the FCC heavily to relax its rule that prohibits any company from owning stations that reach over 35% of U.S. viewers. The company filed suit in May with the outcome still pending. Although the FCC has given in on other regulations, the 35% rule still stands for now. Even so, News Corp. will have a strong hold on U.S. media. In New York alone, the company will own two television stations and the New York Post.

Although some analysts questioned the price tag for Chris-Craft, the majority see it as a good strategic move for News Corp. News Corp. will enjoy huge economies of scale with the additional stations, particularly duopolies in key markets, and plans on reducing costs at Chris-Craft by combining programming, news, engineering and sales in New York and Los Angeles. Fox Network, News Corp.'s U.S. media division, has the distribution and the content to create a second Fox network in strategic locations. If News Corp. can apply its own high profit margins to Chris-Craft, the price tag will be worth it.

Last fall, Viacom agreed to buy CBS, a deal valued at $47 billion that places it behind Time Warner (NYSE:TWX) as the second largest media powerhouse in the world. It then indicated that it would pursue Chris-Craft. Not surprisingly from the way the two disagreed on UPN, they could not reach an agreement. Viacom then enacted a buy-sell provision in its UPN contract to end the partnership. After a messy legal battle, in which Chris-Craft's BHC Communications sued to block the merger with CBS stating that it violated the UPN partnership (a suit that was denied), Viacom bought out the loss-generating station for a measly $5 million - much less than Chris-Craft had invested in the network over the years.

Viacom owns 35 TV stations reaching almost 42% of U.S. viewers since its acquisition of CBS, requiring Viacom to reduce its holdings to comply with FCC guidelines. That is one reason it was so interested in Chris-Craft. Chris-Craft owns stations in many of the same markets as Viacom. Viacom hoped to take advantage of the FCC's duopoly rule that would enable it to reduce its viewership percentage but maintain the same number of stations by acquiring second stations in key markets. The FCC allows companies to hold two stations in the same market, a relaxation of a previous rule, without having the second station count toward the percentage of viewers the company reaches. Viacom would have then reduced its holdings in markets where it owns only one station. Now Viacom will probably have to find new affiliates for UPN, when its affiliation agreement with Chris-Craft close down the operation.

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