Nexstar Thinking Ahead To Its Next Deal

Even as it works to assimilate the stations it just acquired in the $4.6 billion Media General acquisition, Nexstar CEO Perry Sook is thinking about adding even more stations to the fold. “Suffice it to say that we are already in discussions, should the [FCC ownership] rules change, about opportunities that might be available to us,” he told analysts at a conference call to discuss fourth quarter 2016 financial results.

“We are very well positioned to participate in some manner should there be regulatory ownership relief or other avenues that allowed us to build the company and our presence in both new and existing markets,” he said.

Sook does not believe that there will be a large number of stations on the market because they were not bought by the FCC in the reverse auction. “I think everybody in the for-profit-television business got the joke early on that the auction was not going to be any kind of a game-changer of life-affirming event,” he said.

“From our perspective,” he commented, “these are more strategic opportunities. We believe that scale matters. We will continue to pursue opportunities to grow our scale within our local markets and to grow our platform, and I think we’ll be appropriately aggressive on that front.”

The regulatory changes Nexstar is advocating include the reinstatement of the UHF discount, elimination of the eight-voice market test, elimination of the local top-four station co-ownership prohibition and relaxation of the national cap.

Sook believes the UHF discount may come up for discussion as early as the FCC’s open meeting in March, with the other items dealt with together later in the form an NPRM. He noted that he was recently in Washington pushing for the changes both on the Hill and at the FCC.

Of these, the UHF discount is the most important. In one stroke it would take Nexstar’s FCC-calculated reach from 38.9% to 26%, opening up ample cap room for further acquisitions.

Spectrum sold by Media General while its merger with Nexstar was pending amounted to about $479 million. As stipulated in the merger contract, the proceeds will go to former holders of Media General shares, with reductions to account for “indirect benefits” for current shareholders of the combined company. Nexstar closed on the merger in January.

Nexstar got nothing in the action. According to EVP-CFO Tom Carter Carter, Nexstar had a value figure in mind for its stations which the prices being offered in the auction failed to meet.

Sook said the effect the loss of Media General stations in the auction will have on the surviving company will be “de minimus.” It will cause no reduction of the company’s market footprint, nor will it result in any loss of cashflow. Channel-sharing will be used to blunt the impact, with Carter noting that in many cases, sold stations will find a new home on the side-channel capacity of the company’s remaining stations in a market.

Sook claimed that its political take beat expectations by 8.5%, an accomplishment in the odd Trump-diminished political advertising year. Part of the credit went to hot U.S. Senate races in Nevada, Missouri, Indiana, Wisconsin and Pennsylvania, and hot gubernatorial races in Indiana, Missouri, West Virginia, Vermont and New Hampshire. He added that spending from political parties and PACs was up low-double digits from 2012.

Total core revenue was $138.1 million, said Carter, down 4.2% as flat local revenue was pulled down by a $5 million drop in national business.

On a same-station basis, Carter pegged net revenue up 20%, core spot down mid-single digits and retrans up almost 17%.

Sook offered very little guidance. He said local revenue was up single-digits in January while local national challenged. Pacing is “more peppy,” he said compared to 4Q, thanks to the lack of political. He said he believes people are still figuring things out in regard to the Trump administration but are optimistic about prospects for tax relief, which could result in additional advertising spending throughout the year.

Sook said automotive was flat in 4Q, mostly thanks to down-spending from Ford, and that the trend has continued into the first quarter of 2017.

According to Carter, 80% of the company’s retrans contracts were booked in 2015 and 2016. Only 10% are up for renewal this year. Sook added that on the reverse comp side, for legacy stations, the Fox contract is in negotiation now and should be done by the end of the quarter, and the ABC contract comes up by year’s end.

Nexstar has been taking numerous steps to bring its newly acquired Media General stations into harmony with its existing platform. The 2017 target synergy monetization is $81 million, and according to Sook the company is already halfway there via retrans rates and the elimination of duplicate costs.

The company’s end-of-year leverage target is in the high 4s, but it is looking to reduce to the mid-3s by the end of 2018. Sook said these targets do not take into account the possibility of further acquisitions.

Sook said 90 of the company’s 171 stations figure to be in the market for equipment related to the spectrum repack, and said this will help absorb much of the cost of converting stations to ATSC 3.0. On the impact of the new platform, for Nexstar, it’s too early to discuss, he said.