The combined company, after spinning off nine stations, will operate 142 stations in 92 markets with a U.S. coverage of 24%. Raycom President-CEO Pat LaPlatney will become Gray’s president and co-CEO, with Hilton Howell becoming executive chairman and co-CEO.
Gray Television and Raycom Media have agreed to combine in a cash-stock deal valued at $3.6 billion consisting of $2.85 billion in cash, $650 million in a new series of preferred stock, and 11.5 million shares of Gray common stock. Including expected synergies, Gray said, the purchase price represents a multiple of approximately 7.5 times a blended average of Raycom’s anticipated 2018-19 operating cash flow and 7.8 times a blended average of Raycom’s anticipated 2017-18 operating cash flow.
Gray may make some additional “tuck in” buys, but nothing that would “move the needle,” he said. “We don’t expect anything large for the next couple of years. We need to execute on what we are undertaking starting today.”
The transaction marks Gray’s transformation from a small, regional broadcaster into a major media company with nationwide scale.
“Gray and Raycom together are simply a perfect fit,” said Gray Chairman and CEO Hilton Howell on a call with analysts following the early morning announcement of the deal.
Howell said he expected the deal to close in the fourth quarter. “There has simply been one of the smoothest and friendliest negotiations that Gray has ever experienced.”
The merged company will comprise:
- 142 full-power television stations serving 92 markets, the third largest portfolio of stations and markets in the country.
- A station portfolio that reaches 24% of U.S. television households, ranging from large markets such as Tampa-Sarasota, Cleveland, and Charlotte, to some of the smallest markets like Ottumwa, Fairbanks, Presque Isle and North Platte.
- 62 television stations ranked first in all-day Nielsen ratings in their local markets, which is the highest number of top-ranked television stations owned by any broadcaster, according to Gray.
- The No. 1 or the No. 2 Nielsen-rated local television station in 92% of markets.
- Nearly 400 separate program streams including approximately 165 affiliates of ABC, NBC, CBS, and Fox, and more than 100 affiliates of CW, MyNetworkTV and MeTV.
The companies said they have “highly complementary portfolios, and, as such, their combination should create only minimal regulatory issues’ in nine markets” where their holdings overlap. To facilitate prompt approvals and closing, Gray will divest stations in each of the nine overlap markets rather than seek FCC waivers. Specifically, Gray intends to retain and divest stations in the overlap markets as follows:
|Market (Rank)||Retained Station||Divested Station|
|Knoxville (61)||WVLT (CBS)||WTNZ (Fox)|
|Toledo (78)||WTVG (ABC)||WTOL (CBS)|
|Waco (86)||KWTX (CBS)||KXXV (ABC)|
|Tallahassee (108)||WCTV (CBS)||WTXL (ABC)|
|Augusta (112)||WRDW (CBS)||WFXG (Fox)|
|Odessa (144)||KOSA (CBS)||KWES (NBC)|
|Panama City (151)||WJHG (ABC)||WPGX (Fox)|
|Albany (154)||WALB (ABC)||WSWG (CBS)|
|Dothan (173)||WTVY (CBS)||WDFX (Fox)|
Upon the closing, Raycom President and CEO Pat LaPlatney will become Gray’s President and Co-Chief Executive Officer. In addition, LaPlatney and Raycom’s former President and CEO, Paul McTear, both of whom are currently members of Raycom’s Board of Directors, will join Gray’s Board of Directors. At that time, Howell will become Executive Chairman and Co-Chief Executive Officer of Gray. Kevin Latek will continue in his current role of executive vice president, chief legal and development officer.
Gray also announced today that, on July 1, Bob Smith will become its Chief Operating Officer and Nick Waller will become its Chief Administrative Officer. Currently, they serve as Co-Chief Operating Officers. In his new role, Smith will oversee station operations and sales operations through the closing of the transaction. During that period, Waller will oversee human resources, information technology, traffic and CRM systems, capital projects, and performance benchmarking. Waller also will focus on the transition and integration of pending acquisitions.
Latek said Gray is confident it can win FCC and Justice Department approval and go to closing by the end of the year because of its decision to spin off stations in nine markets that would violate the FCC rule against owning two top four stations rather than ask for waivers of the rule.
Well Fargo has been hired to broker the spin offs. “It is already beginning to reach out to potential buyers. We will have an expedited process…. We expect to be at the government by the middle of August with divestitures lined up,” Latek said. He added that Gray was open to swaps, but that it was not interested in “trading down in quality.”
He also said that with an actual reach of 24%, the combined company will be nowhere near the national ownership cap.He noted that with the UHF discount the company will top out at 17%.
“We think this is the cleanest possible transaction that we can present to the FCC and the DOJ.”
Broadcast investor Mario Gabelli, who expressed his unhappiness with Scripps by trying (and failing) to reconstitute its board, congratulated Gray on a job well done. “It’s an interesting dynamic,” he said. “It’s always good to see companies scale up as opposed to those who are still trying to figure it out.”
“Today we announce the transformation of Gray Television into a true leader in the broadcast television industry,” added Howell. “Combining our company with the excellent Raycom stations and the superb Raycom employees will create a powerhouse local media operation. Together, this new portfolio of leading local media outlets will excel at what they do best, which is to provide the local news that local communities trust, the entertainment and sports content that viewers crave, and the incredible reach that advertisers demand. Indeed, this is a transaction in which there can be no doubt that local community standards will be honored and embraced.”
With the borrowing, Gray leverage will swell to five times, said Gray CFO Jim Ryan. But, he said, the company will work that down into the fours in 2019 and into the threes by 2020.
“We are thrilled to be joining Gray Television as we share the same core values of journalistic excellence and community service,” said LaPlatney. “Together, we will be a stronger, more impactful force for our audiences, advertisers, and communities. I have tremendous respect for the way Hilton Howell and Gray Television have grown their portfolio with a focus on localism. I look forward to working alongside Hilton and the wonderfully talented people of Gray Television as the combined entities create an even greater opportunity for growth as a leader in the broadcast industry.”