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Sinclair Buying Freedom For $385 Million

The eight-station deal will give Sinclair two more duopolies, one in West Palm Beach-Fort Pierce, Fla., another in Albany-Schenectady-Troy, N.Y. It also makes Sinclair the country’s largest group in number of stations. Next in line for acquisition is LIN’s WWHO Columbus, Ohio, with a deal to be announced very soon.

Sinclair Broadcasting is buying Freedom Communications’ eight-station broadcast TV division to Sinclair Broadcasting for $385 million, Sinclair announced this morning.

The deal gives Sinclair two more duopolies, one in the West Palm Beach-Fort Pierce, Fla., market (DMA 38), another in Albany-Schenectady-Troy, N.Y. (DMA 58).

The Freedom acquisition is Sinclair’s second major buy in just over two months: In early September, the company announced it was buying Four Points Media’s seven stations in four markets for $200 million.

Sinclair executives emphasized the importance of doubling up where possible and hinted at more acquisitions.

“It is our intent to continue evaluating television station transactions which are accretive and where we can use our expertise and presence to improve profitability and competitive position,” David Smith, Sinclair president/CEO said in the earnings press release announcing the Freedom acquisition (see separate story here).

One such deal could be announced as soon as tomorrow. A source said the company is poised to announce that it is buying LIN Television’s WWHO, a CW affiliate, in Columbus, Ohio (DMA 34) for an estimated $7 million.

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In Wednesday morning’s earnings conference call, Smith provided additional context to the company’s acquisitions.

“The benefits for us are scale and leverage,” Smith said. “Looking at the structures in those markets…we honestly believe we’ll put deals together to get better efficiencies in those markets. We’ll try to bring as much scale as we can to help these people grow their businesses.”

The reference to deals is multi-faceted. With the Freedom and Four Points deals, Sinclair boosts its station count to more than 60, in the process becoming the nation’s largest station group in terms of number of stations. Such size gives Sinclair significant leverage in negotiating retransmission contracts with cable and satellite companies, as well as network and syndicated programming providers.

In addition, owning multiple stations in a single DMA enables Sinclair to improve operational efficiencies with the market.

“For these guys there are some real synergies,” said a source in the financial sector. “The big gem in this [Freedom] deal is West Palm…. It also gives them a little balance in being so heavily Fox and CW.”

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Current regulations permit duopolies only if there are at least eight other different owners of full power stations in the DMA and one of the stations in the duopoly is not among the top-4 ranked stations. Freedom’s WPEC, a CBS affiliate, consistently ranks among the top stations in West Palm but Four Points’ WTVX, a CW affiliate, does not.

Sinclair executives pegged the Freedom deal multiples this way: 6.6 times EBITDA for Sinclair, 9 times for Freedom.

“We like SBGI’s recent acquisitions of Freedom and Four Points stations for several reasons,” Marci Ryvicker, Wells Fargo analyst, wrote following the conference call. “Freedom was purchased at a buyer’s multiple of 6.6x 2012-13 blended EBITDA (9x seller’s 2010-11); Freedom’s station in West Palm Beach will create a duopoly for Sinclair (with a Four Points station); combined, the acquisitions would add [about] $59 million a year ($65 million in political years, $53 million in non-political) of free cash flow (FCF); and leverage is expected to only climb 0.5x (currently 3.83x) incorporating both acquisitions. Lastly on the acquisitions, while a tax shield will be created by the Freedom acquisition, it will be outweighed by the additional FCF; thus we still expect SBGI to become a federal cash tax payer in 2012.”

Sinclair executives anticipate the multiple will improve as Sinclair achieves increased efficiencies.

“It isn’t so much what the multiple from the seller’s perspective is, it’s what we can do when we’re done,” said Steve Marks, vice president and COO of the television division. “6.6 times is conservative. A few years from now, we’ll tell you the real number.”

Ryvicker also noted that the Freedom acquisition allows Sinclair to diversify from its heavy concentration of Fox affiliates.

The Freedom group includes five CBS affiliates, two ABCs and one CW. Sinclair has 15 Fox affiliates.

The Freedom stations are:

  • WPEC (CBS) West Palm Beach, Fla. (DMA 38)
  • WWMT (CBS) Grand Rapids-Kalamazoo-Battle Creek, Mich. (DMA 42)
  • WRGB (CBS)-WCWN (CW) Albany, N.Y. (DMA 58)
  • WTVC (ABC) Chattanooga, Tenn. (DMA 86)
  • WLAJ (ABC) Lansing, Mich. (DMA 115)
  • KTVL (CBS) Medford-Klamath Falls, Ore. (DMA 140)
  • KFDM (CBS) Beaumont-Port Arthur-Orange, Texas (DMA 141)
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Sinclair had all but rejected a deal with Freedom based on the sales prospectus asking price of $400 million to $500 million.

“We were originally not interested, based on valuations,” said David Amy, Sinclair executive vice president/CFO. “But Freedom approached us.”

Amy projected the Freedom and Four Points acquisitions boost Sinclair’s annual free cash flow roughly 40%. 

Smith said he expects the deal to close in 2012’s first quarter or early second quarter, pending regulatory approvals. Until then, Sinclair will operate the Freedom stations under a local marketing agreement, he said.

People familiar with the broadcast TV M&A market had mentioned several possible candidates to acquire Freedom’s station group. Along with Sinclair, they include Belo, Gannett, LIN, Nexstar, Gray and Raycom. However, several of those potential buyers were constrained by debt, challenges in accessing financing or, in Nexstar’s case, proposed sale of one owner’s stake in the company.

Sinclair, on the other hand, has consistently topped the list of likely buyers for Freedom. Sources in the financial sector note that Sinclair is among the few groups with either financial resources on hand or access to them and little debt to constrain it.

Freedom began shopping its geographically diverse station group last fall for $400 million to $500 million, according to sources who had seen the sales prospectus. The asking price translated into somewhere around 8-10 times 2010 cash flow. The asking price multiple was higher for estimated 2010-11 blended cash flow — roughly 9-11 times — due to minimal, at best, political revenues this year.

As the $385 million purchase indicates, the multiple — based on projected 2010-11 cash flows of $45 million — was lower.

The Freedom sale originally was couched as stock sale, primarily because Freedom’s owners wanted to avoid the tax burden of an asset sale.

That Freedom opted for an asset sale of its broadcast properties suggests that Freedom’s owners were heartened by the recent McGraw-Hill station group sale to E.W. Scripps for $212 million, the equivalent of a 10x seller multiple and an 8x buyer multiple.


Comments (14)

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tom denman says:

November 2, 2011 at 9:25 am

I don’t know.. Like many groups, Sinclair was on the ropes when the economy was tanking. Now paying 8X BCF seems too aggressive, especially from a already highly leveraged group. Also these networks don’t line up well with Sinclair’ FOX stable of stations with the risk of diluting operational focus. But of course it’s their a$$.

    len Kubas says:

    November 2, 2011 at 11:54 am

    “on the ropes” is quite distinct from “challenged stock price” and one suspects you actually meant the latter.

    tom denman says:

    November 2, 2011 at 4:13 pm

    Nope, I meant what I said. With the way they were leveraged just three years ago, right about the time automotive and political ads dried up and EBITA dropped 30%, Sinclair could be considered on the ropes. Just Monday, they reported revenues down 4+% Q3. And they’re becoming more leveraged by expanding at 8X BCF? As I said prior, it’s their risk to take, but I argue not a smart one.

elliot jacobson says:

November 2, 2011 at 9:51 am

SBG will no doubt squeeze very dime out of these new aquisitions and make them beyond serviceable vs. the debt. Sadly, there will be a sizeable human toll at the former Freedom, Four Points and Lin properties. Traffic, Business, National Sales and eventually MC operations will all be hubbed leaving behind a wake of layoffs. Programming and News will be “refreshed” with advertorial content and Sales will be re-evaluated with lower compensation structures and flavor of the month initiatives (ie. Ring of Honor Wrestling, MobiDeals) with no client return.

    len Kubas says:

    November 2, 2011 at 11:55 am

    what exactly is wrong with “hubbed master control?” Is this a business, or a jobs program?

    elliot jacobson says:

    November 2, 2011 at 7:10 pm

    Icon…Jobs program? Have you watched a CBS Stations or Local LLC station before?. You could run a full :30 during the dead air from their efficient master control hub

Linda Leavell says:

November 2, 2011 at 10:10 am

Not allowed duopoly is the top-4 ranked stations. Put WSYX (ABC) or WTTE (FOX) for Sale.

    Michael Castengera says:

    November 2, 2011 at 3:18 pm

    They don’t own WTTE.

none none says:

November 2, 2011 at 11:48 am

No problem Cunningham Broadcasting is sitting in the wings.

Hans Schoonover says:

November 2, 2011 at 12:32 pm

A down business could create $100k cash per every million in reduce (AR) sales and the BCF would increase by $850k (8.5 X BCF)

Sandhi Kozsuch says:

November 2, 2011 at 6:04 pm

Freedom should now change their name to Shackled Communications.

Abbie Harrison says:

November 3, 2011 at 12:38 am

Unless the FCC is totally asleep at the wheel, there is no possible way they will allow a triopoly of any kind in the Columbus market with buying WWHO. There aren’t even enough stations for a duopoly, and the FCC has slapped Sinclair’s hands for the flip-flop they did with Glencairn/Cunningham a decade ago when Sinclair bought River City and flipped then-owned WTTE to Glencairn. Even in Nashville, Sinclair’s third station is under an “outsourcing agreement”.


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