THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Sunday, August 14, 1994 TAG: 9408130310
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
TYPE: Interview
LENGTH: Long : 176 lines
Thirty years ago, when he was preparing to take leadership of a Norfolk-based newspaper operation called Landmark Communications Inc., Frank Batten was also becoming interested in a fledgling new medium called cable TV.
With $500,000, Batten and Landmark built a cable system in Roanoke Rapids, N.C. Soon Landmark was building systems throughout the South, Midwest and Southwest. Eventually, the cable operations were broken off into a separate company called TeleCable Corp.
With operations in 15 states and annual revenues of $300 million, TeleCable is by one trade magazine's reckoning the nation's 20th-largest cable operator. And it's about to be sold. Batten announced last week that Norfolk-based TeleCable had agreed to a $1.5 billion buyout by Tele-Communications Inc. TCI, based in Englewood, Colo., is the nation's biggest cable company.
In an interview with staff writer Dave Mayfield, Batten talked about TeleCable's sale and his views on the rapidly changing communications industry.
Batten, 67, is the chairman and controlling shareholder of both TeleCable and Landmark, the latter of which had $436 million in revenues last year. Besides The Virginian-Pilot and The Ledger-Star, Landmark owns newspapers in Roanoke and Greensboro, N.C., as well as in dozens of other communities across the country. It also owns The Weather Channel, The Travel Channel and a foreign cable-TV network called ``travel'' and has a 50 percent interest in Trader Publishing Co., the Norfolk-based publisher of auto-classified magazines.
I guess the most pressing question is: Why sell TeleCable?
We concluded that there was going to be so much convergence of technologies and so much consolidation of cable, computers and telephone services that we really didn't have the size or the resources or the expertise to take advantage of the opportunities that were going to be part of this whole revolution.
Was it a question of TeleCable's ability to survive or to prosper?
Well, I think TeleCable would have survived as an independent player. But I don't think we would have been able to take advantage of the big opportunities. And the biggest single opportunity is to get into the telephone business. That presents such a huge revenue potential - much larger than the revenue in the cable business.
You had TeleCable on the block once before, in '89. Was the timing better this time?
Yes. There were a lot of reasons why we decided not to sell several years ago. . . . We decided that there was a lot more room for growth than we at first were thinking. Another very practical reason for our decision then was that at that time the high-yield bond market crashed. Most of the cable transactions in those days were being financed by high-yield bonds.
Finally, all along we had wanted to do a (stock swap) merger rather than a cash sale. And those days nobody came to us with a merger proposal. They were all cash offers.
Why not just take the cash?
A lot of reasons. If we took the cash, we'd have to pay a lot of taxes on the sale, while a merger is tax-free. And (through a stock swap) we can maintain an investment in the business.
Why sell to TCI?
Most importantly we feel that TCI has enormous potential. I think it has the most visionary manager in the cable business in John Malone. They've been very entrepreneurial, . . . much more entrepreneurial than the typical big public company.
Did TCI also make the highest bid?
Yes.
Can you talk about the process of how you sold the company?
I can tell you that we engaged Lehman Brothers. We told them that we would only consider a (stock swap) merger, not a sale. And we gave them a limited list of companies we would consider. I'm not going to tell you who they were.
They went out and talked to all of the people we were interested in. . . . Eventually, we got into active discussions with several companies.
Your list included some phone companies?
Yes.
And some other cable companies?
Correct.
Do you expect to be a long-term investor in TCI?
Yes. That's my personal intention. I'm not speaking for all of the other (roughly 160) shareholders of TeleCable.
John Malone - had you known him before this?
No, not really. I shook hands with him once.
His aura extends a long way. He's reputed to be ruthless, tough.
A lot of people don't like the big boy on the block. They naturally assume that the big boy on the block is a bully. All of our discussions with TCI have been very straightforward, very fair. They've done everything they said they were going to do. I have talked with a lot of other people I admire who have been in partnership with John Malone - a lot of other newspaper companies have had cable partnerships with him - and invariably they had exceptionally good partnership relationships.
When did you ultimately arrive at the decision to go with TCI?
Negotiations like this, decisions like this, often take place over time. But in the end you often come down to sort of a moment of truth. And you have to make a decision to go one way or another, and that happened last weekend.
Can you describe to me what happened?
I really don't want to go into the details of the discussions, but we had two very good proposals, and we had to decide between them.
You made the final call?
Well, I made the call to propose this to our board, which we did on Monday. lawyers (in New York) to hammer out the details of the contract. I made a final decision on Saturday (Aug. 6) after I realized that we had finally agreed on all the essential issues.
Where were you at this time?
I was home. I spent a lot of time on the telephone.
Where was Malone?
He was (vacationing) in Maine.
During this process, did you ever find yourself asking any ``what if'' questions? Did TeleCable miss making moves that could have put it in the position TCI's in today?
Everybody does that a little bit. But we're very happy with what we've done with TeleCable. Doing what TCI did would not have been our style. They took a lot more risks than we did. They took on a tremendous amount of (debt), which we never did. We probably - within our style, without risking too much - could have made TeleCable twice as big as it is. But we would never have made it into a TCI.
And the other thing is that we wanted to maintain a private company. You have to be public to be a company like TCI - to get access to capital and to do mergers.
Even as big as TCI is, it's still 10 times smaller in revenues than the smallest regional Bell phone company. Will any cable companies be able to survive as phone and cable services converge?
I don't think it is inevitable that they will all merge together. Many of them may form joint ventures with phone companies. . . . Right now, TCI, Time Warner, Comcast and several others are having discussions with AT&T and perhaps Sprint about forming joint ventures to get in the long-distance business in ways that would allow the long-distance carrier to provide services without having to go through the local Bell company. This would also give the cable operators access to the AT&T brand name or the Sprint brand name, which I think they need to be really strong in the telephone business.
Will this explosion of competition in video services - direct broadcast satellites, wireless cable companies, phone companies getting in - make the pie bigger or just cut it into smaller pieces?
I think both. The pie is clearly going to be divided among more players. But at the same time, a lot of the new services that are being developed will increase the pie. . . . Video on demand, movies on demand are bound to increase the pie. I think a lot of the interactive services, transactional services like banking and home shopping, will increase the pie also.
One concern that's being expressed is that some distribution companies are getting too much control over programming. TCI is reportedly under scrutiny from antitrust officials for all of its various programming interests. Is there any legitimacy to the concern?
There is going to be so much competition in the programming business. It's hard to pick up The Wall Street Journal any day and not find some new company entering the programming business. . . . As a practical matter there's going to be so much competition in programming that nobody is going to be able to dominate that market.
Of all the things Landmark is doing, is there anything that has the potential to be another TeleCable?
I think the programming businesses we're in have the potential to be as big or bigger than TeleCable. The Weather Channel, The Travel Channel and other video programming we might get in. . . .
What is the likelihood you'll sell Landmark?
There isn't any. As long as I'm around, there's no possibility of selling Landmark.
What makes Landmark different from TeleCable?
I don't think we would have wanted to sell TeleCable unless there was a business necessity and opportunity. . . . As for Landmark, there's no business reason to sell. There's no advantage to the company or the stockholders or anybody else to sell the company - at least as I see it.
You have said previously that you plan to keep Landmark in the family as long as somebody in the family was capable of doing the job and wanted to do the job. Do you still feel that way?
Yes. I sure do. My son (Frank Batten Jr., president and publisher of The Virginian-Pilot and The Ledger-Star) will be my successor as the controlling stockholder in the company. But also what is just as important is the right kind of succession in the management of the company. We have in place a very strong management succession. A lot of other people are running the company now. I'm just around as an adviser. by CNB