Gannett Sees More Local Media Investments

If you thought Gannett’s $2.2 billion Belo acquisition was a one-off, think again.

Gracia Martore, Gannett CEO, made it clear during today’s second-quarter earnings call with investors that Gannett remains in the hunt.

Noting that the Belo acquisition was the leading highlight for the quarter, Martore said: “We will pursue additional opportunities as they arise,” with the goal of being the “leading local media company in the U.S.”

Components of the Belo deal include offering $13.75 per share of Belo stock, or roughly $1.5 billion, plus assumption of $715 million in debt, yielding an enterprise value of $2.2 billion.

As of midday today, Belo shares were trading above $14. Their climb above the 28% premium Gannett offered on the day the deal was announced has led to concerns that Gannett did not pay enough. That, in turn, has fueled speculation that some Belo investors may push for a higher price from Gannett or open up the bidding to other potential acquirers.

SEC documents show that Belo obtained a fairness opinion before its board, and Gannett’s board, voted to approve the offer. Belo shareholders have not yet voted on the deal. But with Belo board members and executives controlling 42% of the voting power, dissident shareholders have a big hill to climb if they want to force Gannett to improve its bid.

Meanwhile, Gannett appears likely to continue shifting its mix away from the money-draining conventional publishing sector toward businesses — including broadcast and digital — that throw off cash.

“The thought at the moment is the successful integration of Belo will take time and energy to realize the unique opportunities we bring,” Martore said, adding that, “We have a lot of flexibility on the balance sheet to do other things.”

In response to one investor, Martore noted that Gannett is in no danger of exceeding the FCC’s 39% reach cap (effectively 78%) and will be at roughly 24% once it assimilates Belo.

Much of the call focused on Gannett’s “all access” digital initiatives, which include establishing a pay wall for the Web versions of its print publications. Martore noted pointedly that while broadcast is attractive because it’s a strong cash-flow, high-margin business, Gannett’s attention to acquisitions will include targets in other sectors that meet such strategic criteria.

On the front end of the call, she noted that with the Belo acquisition, more than one-half of Gannett’s total EBITDA will come from broadcast. Add digital and that fraction jumps to two-thirds.

Addressing one investor’s question about the potential impact of Aereo on broadcasting, Martore said the while Aereo’s subscriber numbers so far are “inconsequential,” she believes content providers such as Gannett should be fairly compensated for their content.

And despite a recent appellate court ruling backing Aereo v. broadcasters’ efforts to shut it down, “We think the courts will conclude that Aereo must compensate broadcasters,” Martore said.