Saga Communications, Inc.

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Saga Communications, Inc.

73 Kercheval Avenue
Grosse Pointe Farms, Michigan 48236
U.S.A.
(313) 886-7070
Fax: (313) 886-7150

Public Company
Incorporated: 1986
Employees: 747
Sales: $66.3 million (1997)
Stock Exchanges: American
Ticker Symbol: SGA
SICs: 4832 Radio Broadcasting Stations; 4833 Television Broadcasting Stations

In the Nordic language, “saga” means an ongoing adventure. According to Ed Christian, Saga Communications, Inc.’s founder, chairman, president, and CEO, “This is how I view my company and my life. Our company is really an ongoing adventure.” Starting with three AM and five FM radio stations that he acquired in 1986 from Josephson International, Christian built Saga into a company that owned and operated 24 FM and 13 AM radio stations, two state radio networks, and one television station. It also had a 50 percent interest in seven FM stations in Reykjavik, Iceland, the country’s capital. Saga’s strategy was to acquire top-billing radio and television stations in mid-sized markets. It achieved top rankings in those markets through programming and marketing, attracting a disproportionate share of advertising dollars and becoming a dominant force in the markets in which it operated.

Founding by Ed Christian in 1986

Saga Communications was incorporated in May 1986. The company was founded by Ed Christian, who was born in 1944 in Grosse Pointe, Michigan. As a child he dreamed of becoming a radio disk jockey. In 1986 he raised $38.5 million to buy out Josephson International’s radio division, which he had been running for ten years, and renamed it Saga Communications. It owned three AM and five FM radio stations.

Christian was from the small Michigan town of St. Helen’s. Throughout college he worked at local radio stations in Roger City, Lansing, and Flint, both as a weekend anchor and as a salesperson. After graduating from Wayne State University in 1966 with a bachelor’s degree in mass communications, he became an account executive for WCAR-AM-FM in Detroit.

After a couple of job changes and a master’s degree in management from Central Michigan University, Christian decided at the age of 26 to buy a radio station in a small market. He purchased WCER-AM-FM in Charlotte, Michigan, in 1970. After three years, he sold out and made a deal with State Mutual Life Insurance Co. to run a Detroit radio station, WNIC-AM-FM, that it had repossessed. WNIC was in dire financial straits, and State Farm wanted to get it back on its feet so it could be sold. After changing the format to adult contemporary, the station started to come back. After three years it was sold to Josephson International for $4 million. Christian remained with WNIC as the station’s general manager.

Marvin Josephson, head of Josephson International, wanted to build a radio division, and Christian was selected to help build the group. In 1986 Josephson decided to stop acquiring stations and sell the division. He wanted Christian to buy it, and he did. Christian, who realized he knew how to run radio stations but did not know a lot about financing them, had prepared himself by studying finance, so he was ready when Josephson wanted to sell.

Christian initially owned all of the voting stock in Saga Communications, but he made equity shares of the company available to individual station managers and key personnel in the company. He told Broadcasting,’ ’The company is more of a confederacy than anything else.” His philosophy was to let local managers have control of their own destiny.

Initial Public Offering: 1992

When Saga Communications announced it planned to file for an initial public offering (IPO) of stock in 1992, it owned 15 radio stations in medium-sized markets. In its filing with the Securities and Exchange Commission (SEC), it reported 1991 revenues of $25.9 million, operating income of $9.4 million, and an operating profit of $3.4 million. However, interest payments on $39.5 million of debt resulted in a pre-tax loss of $2.1 million.

The company planned to sell 2.3 million share of Class A common stock to raise $27.6 million, with net proceeds to the company of $19.8 million. CEO and chairman Ed Christian would retain control of the company through his ownership of the company’s Class B stock, which had 10 times the voting rights of the Class A stock being offered. The company planned to continue to operate in medium-sized markets, or those ranked from 20th to 130th in size.

Saga made two acquisitions in the fall of 1992. It acquired WIXY-FM in Champaign, Illinois, for $250,000 in September, and WVEM-FM in Springfield, Illinois, for $1.5 million in October, bringing the total number of stations owned to 17. The acquisitions resulted in Saga owning two stations in each market.

Later in the year the company amended its SEC filing, and in December 1992 the company went public. All existing shareholders and partners in the firm exchanged their shares for either Class A or Class B common stock. On August 12, 1993, 685,000 shares of Class A stock were sold at $17.75 per share through underwriter First Boston Corporation. First Boston was a principal stockholder in the company through its Boston Ventures Limited Partnership, which also held much of Saga’s debt.

New Rules on Station Ownership: 1993

Starting in 1993, the Federal Communications Commission (FCC) relaxed its rules on radio station ownership, permitting companies to own up to two AM and two FM stations in a single market as long as the collective market share controlled by the stations at the time of purchase did not exceed 25 percent. Previously, companies were limited to owning a single AM and single FM station in each market.

In May 1993 Saga Communications acquired its third radio station in Portland, Maine, with the acquisition of WYNZ-AM-FM for between $800,000 and $900,000. It already owned WGAN-AM and WMGX-FM in Portland. In November the company entered into an agreement to acquire a second station in Milwaukee, WLZR-AM-FM, for $7 million. It already owned WKLH-FM in Milwaukee. The acquisition of WLZR was completed in 1994.

For fiscal 1993 (ending December 31) Saga reported net income of $757,000 on net operating revenue of $34.6 million. Those figures reflected the 1993 acquisitions of KIOA-FM (Des Moines, Iowa), KXTK-AM (Des Moines), WYNZ (Portland, Maine), WZAN-AM (Portland), and WQQL (Springfield, Illinois), as well as the results of a local marketing agreement for WAFX-FM of Norfolk, Virginia.

Continued Strategy of Acquisitions: 1994

In June 1994 Saga Communications entered the television market by purchasing KOAM-TV from Scarecrow Holdings for $8.55 million. The station served the Joplin, Missouri, and Pittsburg, Kansas, market. For 1994, net operating revenue increased to $44.4 million, and net income jumped to $2.3 million. Those figures reflected the 1994 acquisitions of WLZR (Milwaukee), WJYI (Milwaukee), WAFX (Norfolk), and KOAM-TV. In 1995, net operating revenue rose to $49.7 million, and net income was $2.7 million. No acquisitions were made during 1995.

Telecom Act of 1996 Affects Station Ownership

With the passage of the Telecommunications Act of 1996, companies could own as many as eight radio stations in a single market. The Telecommunications Act also lifted the limitations on the number of radio stations one organization could own in total. As a result, there was a frenzy of buying in the radio industry, as several companies sought to acquire as many stations as possible. In the process, many of them also acquired a substantial amount of debt.

Saga chose to adhere to its program of acquisitions, but it did not wish to assume a lot of debt. It proceeded cautiously, continuing to acquire top-billing stations in medium-sized markets. In February 1996 Saga entered into an agreement with Roy H. Park Broadcasting of the Midwest, Inc. to purchase WNAX-AM and WNAX-FM of Yankton, South Dakota, for $7 million. WNAX-AM was an agricultural station, and WNAX-FM was an oldies station. Both served the Sioux City, Iowa, market from their base in Yankton.

In July 1996 Saga began operating two AM and two FM radio stations serving the Springfield, Illinois, market under a local market agreement. The four stations—WTAX-AM, WDBR-FM, WVAX-AM, and WYXY-FM—were acquired by Saga on May 5, 1997, for $6 million.

Saga began operating radio station KAZR-FM serving Des Moines, Iowa, on August 1, under a local marketing agreement. Saga closed the acquisition of the station on March 14,1997, for a purchase price of $2.7 million. During 1996 the company also acquired an additional AM and an FM station in Portland, Maine.

Net operating revenue for 1996 rose to $56.2 million, and net income increased to $3.9 million. Those figures reflected the 1996 acquisitions of WNAX-AM-FM (Yankton, South Dakota) and WPOR-AM-FM (Portland, Maine), as well as local market agreements for WDBR (Springfield, Illinois), WYXY (Springfield, Illinois), WTAX (Springfield, Illinois), WVAX (Springfield, Illinois), and KAZR (Des Moines).

Company Perspectives:

We began with a few stations, great management, and a vision. Our vision was to create a company that was principled upon excellence in broadcasting. Of course we have always focused upon our operating profits, but we have never forgotten our responsibility towards excellence. Building upon that foundation, we continue to grow our broadcast company. Each year we shape and mold the properties we acquire into our vision.

Acquiring Nine More Radio Stations: 1997

Saga acquired another FM radio station in Des Moines, KLTI-FM, in April 1997 after operating the station under a local market agreement since January. The acquisition price was $3.2 million.

In March 1997 Saga acquired two more radio stations in Milwaukee, WFMR-FM and WFMI-FM, for $5 million, bringing its total to five stations in that market. WFMR-FM, which historically served the fine arts community of Milwaukee, was bought from Harris Classical Broadcasting Co. WFMI-FM was purchased from Harbish Co. Saga changed WFMI’s call letters to WPNT-FM, “The Point,” and changed its format. Following the acquisitions, Saga Communications owned a total of 36 radio stations.

In November 1997 Saga acquired WQLL-FM, serving Manchester, New Hampshire, for $3.4 million, after operating the station under a local market agreement since July. Saga also acquired its first statewide radio network in November when it purchased The Illinois Radio Network for $1.75 million. This regional and state news and sports information network served more than 45 stations throughout Illinois. The company planned to increase the number of affiliates to around 65 or 70 by the end of 1998.

Net revenues for 1997 increased nearly 18 percent to $66.3 million, and net income rose 15.4 percent to $4.5 million. The increase in revenues was attributed to the company’s aggressive acquisitions program, which resulted in Saga buying nine radio stations in four markets during 1997.

Focusing on Medium-Sized Markets

According to 1997 rankings, Saga was operating 37 radio stations in markets ranked from 28th (Columbus, Ohio) to 232nd (Sioux City, Iowa) at the end of the year. It owned multiple stations in the following markets: four FM stations and one AM station in Milwaukee, Wisconsin, ranked 31st; two FM stations and one AM station in Norfolk, Virginia, ranked 39th; four FM stations and two AM stations in Des Moines, Iowa, ranked 67th; three FM stations and three AM stations in Portland, Maine, ranked 82nd; one FM station and one AM station in Springfield, Massachusetts, ranked 85th; four FM stations and two AM stations in Springfield, Illinois, ranked 139th; two FM stations and one AM station in Manchester, New Hampshire, ranked 140th; and two FM stations in Champaign, Illinois, ranked 165th.

The company’s single television station, KOAM-TV, served the Joplin, Missouri, and Pittsburg, Kansas, market, which was ranked 146th by number of television households. It was the top-ranked station of four in the market and was a CBS affiliate.

Acquisitions Continue in 1998

Saga closed on its second network acquisition, The Michigan Radio Network, in March 1998 for a price of not more than $1.5 million subject to certain adjustments. Like The Illinois Radio Network, The Michigan Radio Network was a regional and state news and sports information network. At the time of the acquisition, it had more than 55 affiliated radio stations. Saga planned to add ten additional affiliates in 1998. Saga believed that it could acquire state radio networks at a lower multiple of cash flow than it could acquire individual radio stations. The company planned to acquire several more state radio networks in the future.

In June 1998 Saga acquired a 50 percent interest in an Icelandic Corporation, Finn Midill, ehf., that owned six FM radio stations serving Iceland’s capital, Reykjavik, for $1.1 million. Saga became aware of radio opportunities in Iceland in 1997, when a group of station managers were rewarded with an Icelandic fishing trip for exceeding their budget targets. Christian himself is of Icelandic heritage, and he served as the Honorary Consul of Iceland for Michigan, Ohio, and Indiana.

Saga expanded its television station holdings in July 1998 when it entered into an agreement to purchase KAVU-TV, an ABC affiliate, and a low power Univision affiliate serving the Victoria, Texas, market for $11.9 million in cash and stock. Saga also assumed an existing local market agreement to operate KVCT-TV, a Fox affiliate in Victoria.

Saga entered a new market, Bellingham, Washington, in July 1998, when it agreed to acquire KGMI-AM and KISM-FM for $8 million. In August 1998 Saga’s board of directors authorized a stock repurchase program. The company felt its stock was undervalued. On June 24 it had hit a 52-week low of $14 per share. Under the program the company intended to repurchase up to $2 million of its Class A common stock. At this point, the company owned 24 FM and 13 AM radio stations, two state radio networks, one TV station, and a 50 percent interest in seven FM stations in Reykjavik, Iceland.

Outlook Calls for More Acquisitions

At the end of 1998, Saga appeared committed to its strategy of acquiring radio and television stations in medium-sized markets. Through its ownership of multiple stations, it could achieve dominance in those markets through programming and marketing initiatives. At the same time, the company was committed to keeping its total debt at manageable levels, and it was not likely to take on substantial debt simply for the sake of acquiring more stations.