Acme Plans $115-Million Stock Offering

Riding the success of the WB, Acme Communications Inc., the owner of nine television stations affiliated with the teen broadcast network, plans to raise as much as $115 million this fall through an initial public offering of its stock.

Although broadcast station groups have been trading on Wall Street at a discount to private market values, analysts say the Santa Ana-based company could break from the pack because of its affiliation with the WB. Since its launch in 1995, the WB has become the top-rated network for teens with prime-time shows such as “7th Heaven” and “Buffy the Vampire Slayer,” expanding its audience at a time when cable has eroded overall broadcast viewership.

“The trends for broadcasters have stunk for the last 12 months,” said James Marsh, an analyst at Prudential Securities. “But there’s lots of demand for TV growth stories, and the WB’s is the only one out there. Acme’s timing is perfect.”

Acme, which was co-founded in 1997 by Jamie Kellner two years after he launched the WB with Time Warner and Tribune, would be the only public company focused entirely on the young network. The WB’s two largest affiliates, Sinclair Broadcast Group and Tribune, have been hurt on Wall Street because of their affiliations with the Fox network, which has taken back advertising inventory from its affiliates to compensate for rising programming costs and falling viewership.

Sinclair, which owns 14 WB stations, is Fox’s largest affiliate group, while Tribune owns five Fox stations, 12 WB stations and three stations affiliated with other networks, in addition to newspaper holdings that many television investors shy away from.

Marsh said most of Acme’s stations are start-ups or were financial underperformers before they were acquired. While the stations have low margins, he said they should improve with new management as the WB matures, just as station groups such as Sinclair rode Fox’s growth from rags to riches.

“Its advertising rates are increasing, and its upfront season was 50% bigger than last year’s,” said Marsh, referring to the ad selling season when networks sell the bulk of their prime-time inventory for the fall.

The WB, which will be programming 13 hours of prime time, up from two hours in 1995, sold $450 million in national advertising in prime time for the fall season, up from $300 million last fall. That is a fraction of the upfront orders of the major networks, whose audiences are still much larger than the WB’s.

The WB also programs 19 hours during the daytime, mostly with Warner Bros. cartoons.

Though Acme does not receive distribution fees for carrying network programming, as do the station affiliates of ABC, CBS and NBC, Marsh said the WB’s business model adds a measure of stability. With traditional networks struggling to make money amid rising costs and falling ratings, these compensation fees, which amount to $200 million a year for the majors, are expected to disappear once current contracts with affiliates expire in the coming years.

Kellner, 51, launched the WB after leaving Fox as president, having built the network with Barry Diller. He formed Acme with Tom Allen, the former chief financial officer of Fox Broadcasting, and Doug Gealy, a television station executive who formerly ran a WB affiliate in Columbus, Ohio. Allen and Gealy are now Acme CFO and president, respectively.

Kellner, who has an 11% equity stake in the WB, holds a 5.27% stake in Acme. He and the other founders, who started Acme with $600,000 of their own money, will hold up to 9% after the offering.

The company’s filing did not detail the size of the offering, the timing or the price of the shares. But Allen said most of the proceeds would be used to pay down debt.

Acme stations reach about 5.4% of the nation’s total population and are in medium-sized cities: St. Louis; Portland, Ore.; Salt Lake City; Albuquerque; Dayton, Ohio; Knoxville, Tenn.; Green Bay, Wis.; Champaign, Ill.; and Fort Myers, Fla.

Marsh expects Acme to sell roughly a third of the company to the public in an offering that will value Acme at up to $300 million.

The company reported a loss of $9.3 million against revenue of $11.1 million for the three months ended March 31, compared with a $4.7-million loss on $7.8 million in revenue for the same period a year earlier.