With this deal, Gannett — which is already the top owner of NBC affiliates — will also have the No. 1 independent CBS station group and become No. 4 for ABC. It will control 43 stations, up from 23, that will reach about a third of the country including 21 of the 25 largest markets. The news has already propelled Belo shares +27% in pre-market trading while Gannett’s +14%. Gannett is the nation’s largest newspaper owner with properties including USA Today, but has been eager to diversify as the print business continues to decline. CEO Gracia Martore calls the Belo deal “another important step in the process” that will leave it with “one of the largest, most geographically diverse and network-balanced TV station groups in the country.” It agreed to pay $13.75 for each share of Belo, which closed Wednesday at $10.73. If you add in Belo’s $715M in debt, the enterprise value of the deal comes to $2.2B. Despite the additional financial burden, Gannett says it can continue with its plans to repurchase its shares and pay a dividend while it “expects to promptly pay down the debt associated with this transaction and maintain significant financial flexibility going forward.” The companies expect the deal to close by year end after it’s reviewed by the FCC and antitrust officials.
Gannett’s agreement to buy Belo is part of a consolidation wave in broadcasting: For example, last week Media General said it will merge with Young Broadcasting and before that Sinclair unveiled plans to buy several smaller groups including Fisher Communications. Many sellers see this as a good time to bail out of a mature business that’s struggling to keep viewers from rivals on pay TV and the Internet. But buyers typically say that broadcasting should continue to grow, especially as stations raise the retransmission consent fees they collect from pay TV distributors. Those payments could rise to $6.1B in 2018 from $2.4B last year, SNL Kagan projects.
Here’s today’s release from Gannett and Belo with additional details about the terms:
McLEAN, VA and DALLAS, TX – JUNE 13, 2013 – Gannett Co., Inc. (NYSE: GCI) and Belo Corp. (NYSE: BLC) jointly announced today that they have entered into a definitive merger agreement under which Gannett will acquire all outstanding shares of Belo for $13.75 per share in cash, or approximately $1.5 billion, plus the assumption of $715 million in existing debt for an enterprise value of approximately $2.2 billion. The transaction, which has been unanimously approved by the boards of directors of both companies, represents a 28.1 percent premium to the closing price of Belo common stock on June 12, 2013.
The combination creates a broadcast “Super Group,” catapulting Gannett into the nation’s fourth-largest owner of major network affiliates reaching nearly a third of all U.S. households. The acquisition nearly doubles Gannett’s current broadcast portfolio from 23 to 43 stations, including stations to be serviced by Gannett through shared services or similar sharing arrangements. Upon completion of the transaction, Gannett’s Broadcast segment will have greater geographic and revenue diversity, with 21 stations in the top 25 markets and will become the #1 CBS affiliate group, the #4 ABC affiliate group, and will expand its already #1 NBC affiliate group position. Following the transaction, Gannett’s Broadcast segment is expected to contribute more than half of the Company’s pro forma total EBITDA, and the Digital and Broadcast segments combined are expected to contribute nearly two-thirds.
The Company anticipates that the transaction will generate approximately $175 million in annual run-rate synergies within three years after closing. The transaction is expected to generate significant free cash flow and be accretive to non-GAAP earnings per share by approximately $0.50 within the first 12 months. The transaction valuation implies a 9.4x average 2011/2012 EBITDA multiple prior to synergies, and a 5.4x multiple assuming expected synergies.
Gracia Martore, President and Chief Executive Officer of Gannett, said, “We are thrilled to bring together two highly respected media companies with rich histories of award-winning journalism, operational excellence and strong brand leadership. We have been successfully transforming Gannett into a diversified multi-media company with broadcast, digital and publishing components across high-growth markets nationwide, and this is another important step in the process. It will significantly improve our cash flow and financial strength, enabling us to quickly pay down debt while remaining committed to disciplined capital allocation. By enhancing our portfolio with one of the largest, most geographically diverse and network-balanced TV station groups in the country, the new Gannett will be well positioned to lead innovation, bolster our existing growth initiatives and take advantage of new opportunities in the emerging digital media landscape.”
Commenting on the transaction, Dunia A. Shive, Belo’s President and Chief Executive Officer, said, “This is an outstanding and financially compelling transaction for our shareholders. It is also a testament to the tremendous value our employees have created over Belo’s long history and to the strength of our brand in the media industry. I am confident that we have found an excellent partner in Gannett – they are a leading media company that shares our commitment to the highest levels of journalistic integrity and embraces an active approach to community involvement. Together, this portfolio of media assets will be well-positioned to capitalize on substantial growth opportunities in the years ahead.”
Additional Transaction Details
The transaction is expected to close by the end of 2013, subject to antitrust approval, Federal Communications Commission (FCC) approval, approval by holders of two-thirds of the voting power of Belo shares, and customary closing conditions. Belo’s directors and executive officers, who collectively own approximately 42 percent of the voting power of Belo’s outstanding shares, have entered into voting and support agreements to vote their shares in favor of the transaction with Gannett. Gannett expects to finance the purchase through cash on hand, accessing the capital markets and bank financing.
Capital Allocation Update
Gannett will continue its share buyback program and has replaced its existing remaining authorization with a new $300 million authorization expected to be used over the next two years. The Company will also continue its existing dividend payment program. Given Gannett’s balance sheet strength and increased cash flows from Belo’s broadcast stations, the Company expects to promptly pay down the debt associated with this transaction and maintain significant financial flexibility going forward.
J.P. Morgan Securities LLC is providing financial advice and Nixon Peabody and Paul Hastings are serving as legal advisors to Gannett on the transaction. RBC Capital Markets, LLC is providing financial advice and Wachtell Lipton Rosen & Katz is acting as legal advisor to Belo.