It’s been a bad week for most media stocks — with one notable exception: Tribune Media. Shares are up more than 8.1% since Friday as industry watchers see a potential bidding war breaking out over the owner of the biggest TV station group, which reaches 44% of all households including seven of the 10 biggest markets.
Sinclair Broadcasting is known to be interested in Tribune, which has a market value of $3.5 billion with more than $2.5 billion in net debt.
And this week word emerged that Fox and the Blackstone Group might team to make an offer.
Either possibility would have been unthinkable a few months ago. The FCC bars companies from reaching more than 39% of households. (Tribune doesn’t violate because of a rule that enables station owners to just count half of the markets reached by UHF stations; that reduces its reach to 27%.)
But long-standing ownership restrictions may be scrapped in a review driven by FCC Chairman Ajit Pai. And stations have the flexibility to wheel and deal now that the FCC has wrapped up its auction of broadcasters’ airwave spectrum.
“The prospects for further deregulation are very high later on this year, and we’re already hearing about people reevaluating where they are, and whether they should be hitting the market as it opens up here,” Sinclair CEO Christopher Ripley told analysts last night. “So we think it’s a buyer’s market, and that’s why we loaded up the balance sheet.”
In addition to Sinclair, Nexstar and Gray Television are seen as potential TV station buyers — and CBS chief Les Moonves has said he’d consider entering the fray.
Any number of small station groups might want to sell: Competition for ad dollars is intensifying as YouTube, Facebook and other digital powers load up on video. Station owners also will need cash for technological upgrades — notably the coming transition to ATSC 3.0, a broadcast standard that offers sharper video and interactive communications.
But Tribune is the biggest — and most immediate — opportunity. It’s been on the block for more than a year as it grappled to reduce its groaning debt, much of which has been on the books since it emerged from bankruptcy protection in 2013.
Sinclair’s interested because it believes in the prospects for local broadcasting, especially for those large enough to spread news gathering and other costs across multiple markets. The large scale would also give it clout to insist that cable and satellite companies pay large fees to retransmit its programming.
But it’s easy to see why that might worry Fox. Sinclair is already the broadcast network’s largest independent affiliate owner, reaching 16.9% of its audience. Tribune is No. 2, with 13.5%.
The thinking is that Fox might top a Sinclair offer by forging a joint venture with the Blackstone Group. Fox would contribute its 28 stations for 50% of the new entity. That could take them off 21st Century Fox’s books, potentially helping with the company’s effort to buy the 61% share it doesn’t already own in UK pay-TV giant Sky.
Blackstone would then put up the cash needed for a deal with Tribune.
Fox “is not ‘buying’ TV stations but would have equity in a larger and stronger station portfolio,” says Wells Fargo Securities’ Marci Ryvicker.
It’s unclear what might happen to Tribune’s other assets — including WGN America, Chicago’s WGN-AM, a 32% stake in CareerBuilder, and 31% of Food Network.
But Ryvicker says no worries: the assets “are small when compared to [Fox’s] own TV segment and stations.”
Meanwhile, Fox would indirectly become more powerful in negotiating deals with the NFL. In addition to its stations in 12 of the 13 largest markets, Tribune “would build that out even further with the additions of Seattle and Milwaukee plus many other AFC cities including Denver, Cleveland, Indianapolis and San Diego,” MoffettNathanson Research’s Michael Nathanson says.
He notes, though, that the JV “would likely divest stations in markets with three [Fox] O&O stations like New York, Los Angeles, Chicago, Dallas and Washington.”