The deal, which includes $1.5 billion in cash and $715 in assumption of debt, creates a self-described “super group” with 43 stations and accelerates the print-to-electronic transformation of Gannett. The valuation pegs the cash-flow multiple at 9.4x without expected synergies of $175 million or 5.4x with the synergies.
In a deal that will propel it to the top ranks of broadcasting, Gannett announced this morning that it is acquiring Belo, a publicly traded pure-play TV station group, in a deal valued at $2.2 billion — $1.5 billion in cash plus the assumption of $715 of existing debt.
The cash breaks down to $13.75 per share of Belo, a 28% premium on its closing price yesterday.
The self-described “super group” will reach nearly a third of U.S. TV homes with 43 stations, including stations managed by Gannett through shared services and similar sharing arrangements.
Gannett is currently No. 6 on the TVNewsCheck-BIA/Kelsey Top 30 TV station group ranking, which is based on 2012 spot revenue. With the acquisition of No. 10 Belo, it jumps to No. 3, behind only Fox Television Stations and CBS.
According to Gannett, the deal also accelerates the transformation of the company from print to electronic media. Following the transaction, broadcasting will contribute more than half of its EBITDA, and broadcasting and digital combined will account for nearly two-thirds.
“We are thrilled to bring together two highly respected media companies with rich histories of award-winning journalism, operational excellence and strong brand leadership,” said Gannett CEO Gracia Martore. “We have been successfully transforming Gannett into a diversified multi-media company with broadcast, digital and publishing components across high-growth markets nationwide, and this is another important step in the process.
It will significantly improve our cash flow and financial strength, enabling us to quickly pay down debt while remaining committed to disciplined capital allocation. By enhancing our portfolio with one of the largest, most geographically diverse and network-balanced TV station groups in the country, the new Gannett will be well positioned to lead innovation, bolster our existing growth initiatives and take advantage of new opportunities in the emerging digital media landscape.”
Gannett says its expects the deal to generate approximately $175 million in annual run-rate synergies within three years after closing. It calculates the selling multiple at 9.4x average 2011-12 EBITDA multiple prior to synergies, and a 5.4x multiple with the synergies.
In a note to clients, Wells Fargo broadcast securities analyst Marci Ryvicker called the deal “really good for valuations.”
“For two companies who have not been much involved in M&A, we were (positively) surprised by this morning’s announcement. Our ”gut” told us BLC [Belo] was a net seller of assets, but we are very surprised at how quickly Stage 3 consolidation has fallen upon us.
“Better yet, thinking about the rest of our coverage, if we were to apply the 9.4x fair market multiple…to NXST [Nexstar], SBGI [Sinclair], TVL [LIN] and GTN [Gray], we get stock price valuations of $50, $35, $26, and $7, respectively–and this is before any additional M&A.”