It agrees to pay $600 million for stations in Raleigh, N.C.; Columbus, Ohio; Birmingham, Ala.; and Providence, R.I. It puts four others on the block in Birmingham; Wichita, Kan.; Mason City, Iowa; and Chattanooga, Tenn., hoping to raise $150 million.
Media General is buying four TV stations from NBC Universal for approximately $600 million, subject to FCC approval.
The stations and their Designated Market Area ranks: WNCN Raleigh, N.C., No.29; WCMH Columbus, Ohio, No. 32; WVTM Birmingham, Ala., No. 40; and WJAR Providence, R.I., No. 51. All four stations are ranked among the top three in their respective markets. Three of the markets are state capitals and all four are major university communities.
The acquisition of the four stations “is compelling from both an operational and financial perspective,” said Marshall N. Morton, president and chief executive officer of Media General. “The NBC properties we are purchasing are strong stations in cities with attractive growth prospects. Our purchase of these stations is consistent with our growth strategy and will advance, in two ways, our goal of building upon our position of strength in growing Southeastern markets.
“First, we will add the key Raleigh-Durham market to our footprint,” Morton said. “Second, the NBC station we are acquiring in Birmingham has a broader signal than the CBS station we currently own, giving us the opportunity to reach more households in that market. At the same time, while the Columbus and Providence stations we are acquiring are outside the Southeast, our station portfolio will benefit from their strength in audience and revenue share and from their position in growing, larger-market DMAs.”
Morton added: “Media General has a strong track record of successfully acquiring and integrating television stations. These properties will enhance, from the start, our Broadcast Division revenue growth, segment cash flow and margins. Importantly, we intend to add further value to these stations by implementing several Media General sales and operating practices related to revenue development initiatives and thereby realizing synergies of $3 million to $3.5 million per year.”
Media General said it intends to finance the transaction using existing capacity under a $1 billion bank facility, $100 million of new public debt and approximately $150 million in proceeds from asset sales. Media General also said it expects the deal to close in the second or third quarter of this year.
As a result of the purchases, Media General will sell its CBS affiliate in Birmingham, WIAT, to comply with FCC ownership rules. Media General said it also plans to sell its CBS affiliates KWCH Wichita, Kan., including that station’s three satellites; KIMT Mason City, Iowa; and WDEF Chattanooga, Tenn. Media General intends to divest these assets, separately or as a group, by the end of this year.
“Our decision to part with several valuable stations and their associated, valued employees was difficult, but we believe these stations will be viewed as welcome additions to the station portfolios of one or more strategic buyers,” said Morton.
Jay Ireland, president of the NBC Universal Television Stations, said “NBC Universal’s decision to sell these four stations is part of our strategy to focus on larger, duopoly markets in local communities which NBC and Telemundo can serve together.”
Morton said the acquisition will immediately increase Media General’s free cash flow. “As with most media acquisitions, this transaction will not be accretive to earnings per share in the first few years because it will add approximately $10 million in non-cash amortization and depreciation expense to our income statement annually. Nevertheless, we believe these stations will be significant contributors to our earnings per share over time,” he added.
The transaction, Media General said, “will generate meaningful future tax savings resulting from incremental amortization and depreciation deductions related to the acquired assets. The net transaction value, reduced by the present value of the expected tax savings, is approximately $450 million.”
The company added that “broadcast financial results in even-numbered years include political revenues and Olympics advertising, and odd-numbered years tend to reflect a deficiency of those revenues. Therefore, Media General has considered the valuation of this transaction based on a two-year average of broadcast cash flow, which takes into account the biennial effect of political and Olympics revenues. The transaction represents a multiple of 14 times 2004-05 average broadcast cash flow for the four stations. Pro forma for the expected synergies, which will be realized fully in the second full year of ownership, the transaction represents a multiple of 13 times 2004-05 average broadcast cash flow for the four stations.”