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Justice Clears Disney-Capital Cities-ABC Deal

January 16, 1996

WASHINGTON (AP) _ Walt Disney Co.’s $19 billion purchase of Capital Cities/ABC Inc. won clearance from the Justice Department on Tuesday after Disney agreed to sell a Los Angeles television station.

Disney’s agreement to sell KCAL-TV leaves only one regulatory obstacle, approval from the Federal Communications Commission. Industry analysts and attorneys expect FCC approval will come by the end of the month.

``I don’t anticipate any problems,″ said Harold Vogel, entertainment and media analyst at Cowen & Co. in New York. Shareholders for both companies approved the deal earlier this month.

The Justice Department’s antitrust division was investigating whether Disney’s ownership of both KCAL-TV and KABC-TV in Los Angeles would reduce competition and raise advertising prices in Los Angeles. Federal law forbids broadcasters from owning two VHF television stations in a single market.

``Disney’s commitment to sell KCAL-TV ensures that the deal will not harm competition in the sale of advertising in Los Angeles, and makes further action by the division unnecessary at this time,″ Anne K. Bingaman, assistant attorney general for antitrust, said in a statement.

Disney said it filed an application with the FCC seeking a temporary waiver of the two-station rule pending the KCAL-TV sale, the statement said. Disney agreed to keep KCAL-TV and KABC-TV separate until the sale.

The Justice Department didn’t find any other anticompetitive effects from the combination, which will create a leading entertainment and media business with annual revenue of about $17 billion. Industry analysts weren’t surprised by this, since the two companies are engaged in fundamentally different businesses.

``It’s a pretty clean story. The only overlap that you had were the two stations in Los Angeles,″ said Vogel, the media analyst. Shares of both companies closed unchanged after trading on the New York Stock Exchange, with Disney at $60 a share and Capital Cities/ABC at $124.

Disney is a leading producer of movies, TV shows and cartoons, while Capital Cities/ABC’s strength lies in distribution through its far-flung ABC network, local TV and radio stations, and cable channels such as ESPN.

Justice investigators also examined if the new Disney would gain unfair dominance because both companies are engaged in video programming production and distribution.

``The Department concluded that such a combination would not violate antitrust laws,″ the agency said.

Larry Fullerton, a deputy assistant attorney general, said the merger was among the more complex his agency has seen.

``We put a lot of resources into it,″ Fullerton said of the investigation. ``It spanned over several months.″ Both companies were cooperative, he added.

Disney has also agreed that the Department of Justice could file a consent decree with the federal court in Los Angeles if a purchaser is not found in nine months from the time the FCC approves the pending applications. If such a decree were to be filed, Disney would agree to the appointment of a trustee to accomplish the KCAL-TV sale.

The company already has hired the investment banking firm Bear Stearns & Co. Inc. to find a buyer for the KCAL, Channel 9 in Los Angeles, which it acquired for $320 million in 1988.

While analysts expect FCC approval of the merger, one contested request is for the merged company to permanently own a radio and newspaper in Fort Worth, Texas, and in Wayne County, Mich.

A coalition led by the Center for Media Education asked the FCC to turn down this request, saying it would unduly concentrate ownership and editorial diversity in those two markets.

The FCC had no immediate comment on when it would take up the deal.

While the Disney and Capital Cities/ABC will be formidable, Time Warner Inc. is expected to remain the biggest media and entertainment business when it completes its $7.5 billion takeover of Turner Broadcasting System Inc.

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