LIN: New Vision Buy Offers Synergies

LIN Media says various synergies that comes with its $342.4 million acquisition of New Vision puts its buyer multiple at less than 6 times EBITDA.

Add an expected tax benefit to LIN of $84 million and the multiple falls to roughly 4.5 times EBITDA.

The seller multiple? Somewhere just under 10 times EBITDA, according to sources in the investment community.

That’s a big gap and during Wednesday morning’s first quarter earnings conference call, some analysts and investors wondered just how LIN closes that gap.

LIN management, calling the acquisition accretive, said the addition of New Vision’s 16 stations in eight markets will add $25 million in incremental EBITDA by year three.

When Barry Lucas, Gabelli & Co. analyst asked how the company arrived at those numbers, Vincent Sadusky, LIN’s president/CEO, declined to provide specifics.

“You don’t create any new duopolies [with existing LIN properties], there’s a step up in leverage, you defer any issue with Hicks Muse getting out,” Lucas said. “It’s hard to see value accretion when the stock is trading at five times broadcast cash flow.”

Private equity firm Hicks Muse, LIN’s owner, put the group on the market in 2007, hoping to cash in on multiples that at the time stretched into the mid-teens. But as the economy slid into recession in 2008, the group was taken off the market.

“We are a very financially disciplined company,” Sadusky responded to Lucas’ question. “We have no interest in getting bigger for bigger’s sake.… We do believe this is an accretive deal and there are opportunities to create further duopolies. We like the transaction, we like the mix of assets, we think it makes this entity stronger…. Going forward, we’ve run plenty of downside scenarios to contemplate 2008-09 over again, which we hope doesn’t happen, and would be comfortable with our balance sheet.

“We don’t believe it limits our strategic flexibility going forward. We don’t believe it limits the company on the sales side as well.”

LIN’s consolidated leverage stands at 4.6 times EBITDA compared to 4.9 times at year-end 2011. Rich Schmaeling, CFO, said: “At year end, pro forma for the transaction, we expect our total leverage will be approximately 1 turn greater compared to what we had previously projected on a standalone basis. We also expect that our total leverage will be close to 2 turns inside our 6 times covenant, leaving LIN with ample financial flexibility.”

Observing “there was not a lot of color” on the projected synergies in her morning note following the call, Wells Fargo analyst Marci Ryvicker said, “we expect retransmission consent is a big one, in addition to infrastructure, corporate overhead and digital.”

The transaction is structured as an asset sale. LIN put down $33.5 million, money generated from last year’s sale of WWHO (CW) in Columbus, Ohio, and WUPW (Fox) in Toledo. The company intends to finance the remainder, roughly $308.8 million, by tapping its revolving line of credit and bond markets.

The deal boosts LIN’s station count from 32 to 48 and adds five duopolies to LIN’s stable. Those include three with Big Four networks. Prior to the New Vision acquisition, LIN had 11 duopolies, including five encompassing Big Four networks.

LIN’s holdings are primarily in mid-size markets. New Vision’s properties are in mid-size to smaller markets.