Noble Broadcast Seeks to Buy 9 Radio Stations

Noble Broadcast Group, the fast-growing San Diego radio station chain whose holdings include the XTRA AM and FM stations of San Diego, will announce the purchase of at least five, possibly nine more radio stations over the next week in deals that may make Noble one of the largest station owners in the country.

If Noble acquires all nine stations that it is pursuing--a $161-million package including FM stations in Houston, Seattle, St. Louis and Detroit--the chain’s ownership would expand from 12 to 21 stations. Noble president John Lynch insisted on Monday that, at the very minimum, his company will buy five more stations this month for $115 million, bringing Noble’s stations to 17.

Broadcasting from Mexico

As recently as 1985, Noble consisted of just the two XTRA properties, both of which have studios in San Diego and high-powered broadcast facilities in Tijuana. Since then, Noble has gone on an acquisition binge, buying 10 AM and FM stations in Denver; Kansas City; Boston; Long Island, N.Y., and New Haven, Conn.

Noble, which now has annual revenue of about $100 million, is one of several U.S. radio chains that have blossomed over the last five years or so, spurred by the loosening of regulatory controls that once restricted radio ownership by one group to 12 stations. Now, one group or individual may own up to 24 radio stations.

The growth has also been spurred by Wall Street’s discovery of “pure” radio as an exciting growth industry exemplified by publicly held companies such as Infinity Broadcasting of New York, Jacor Communications of Cincinnati and Malrite Communications Group of Cleveland. Formerly, radio was largely subsumed in media conglomerates such as CBS, Gannett and Capital Cities/ABC.

“The perception had been that radio was highly competitive with mediocre margins,” said Edward Hatch, a media analyst with Merrill Lynch Capital Markets in New York. “But good radio companies such as Infinity have shown investors that they can produce profits comparable to TV stations.”

Lynch, a 43-year-old former Pittsburgh Steelers linebacker who is Noble’s chief executive, co-founder and now sole shareholder, said he plans to increase Noble’s holdings eventually to the 24-station limit allowable by the Federal Communications Commission. The deals to be consummated this week are part of his goal to build a “major radio company.”

Once Noble reaches the 24-station maximum ownership limit, it may expand into other media, including cable and television, Lynch said.

Bought Out Partners

Lynch co-founded Noble in 1977 with financial backing of the late Ed Noble, son of the founder of Life Savers candy, and A. J. F. O’Reilly, now chairman of H. J. Heinz. But the growth of Noble did not begin until Lynch bought out his partners in 1985, taking sole control of the company.

Noble’s growth has also been speeded by Lynch’s hiring of executive vice president Norm Feuer, a former president of Viacom Broadcasting in New York. Other key executives include chief financial officer Frank De Francesco and chief counsel Terry O’Malley, who as a Gray Cary Ames & Frye attorney, helped Lynch put Noble’s first acquisitions together.

Lynch played one season with the Steelers before leaving the sport in 1969 because of injuries. He then worked in sales at a Westinghouse radio affiliate in Chicago and did well enough that he was hired as general sales manager at KFMB in San Diego in 1972 at the age of 25.

After helping to turn KFMB around, Lynch was approached by Noble in 1977 about heading up a new broadcast group. Because Noble had married a Mexican citizen, Noble and Lynch were able to buy XTRA in 1977 and make Noble’s children, also Mexican citizens, the station’s licensees. Thus was born Noble Broadcast Group.

Noble Broadcast Group did not make its next buy until 1983, when it bought KJOI-FM in Los Angeles for $18.5 million. The group’s plans for more growth came to an abrupt stop after Noble was diagnosed with inoperable cancer in 1985. Noble and O’Reilly then opted to sell their stock to Lynch for $44 million, a purchase Lynch financed by selling KJOI for $43 million.

The sale of KJOI not only generated a 100% profit for Noble after two years, but its $43-million sale price was then the largest ever paid for an FM station.

After Lynch assumed absolute control of the company in early 1986, Noble embarked on a dizzying round of acquisitions, buying AM and FM stations in Boston and New Haven in 1986, and in Denver and Kansas City last year.

Poised to Go Public

Noble has financed its growth to date through borrowings but was poised to go public late last year, a plan that was dashed by the stock market crash of Oct. 19. The company will probably remain private for another year or two, he said.

The value of radio stations such as Noble’s and of other radio chains has increased significantly over the past several years, said Drew Marcus, a media analyst with Kidder, Peabody & Co. in New York. The increase partly because of greater revenue growth in local advertising, which benefits radio, than in national advertising, which benefits television, he said. “Advertisers now want to be as targeted as possible,” Marcus said.

Radio is also benefitting by comparison with lower profits in TV as margins are squeezed by increasing TV programming costs and by “fractionalization” of the market caused by the intrusion of cable TV.

“What’s happening in TV is that audiences are shrinking while advertising costs are going up. Those are not very attractive to advertisers,” said Mel Karmazin, executive vice president of Infinity Broadcasting, one of Wall Street’s favored radio stocks. Among Infinity’s 15 properties are stations in each of the nation’s top 10 radio markets, including KROQ in Los Angeles.

“Radio has a low cost structure, is not as capital-intensive as television and has control over its destiny. We create our own programming, while TV is dependent on networks and syndicators for its programming,” Karmazin said.