Meredith Buying Three Stations From Gannett

Meredith is buying television stations in Phoenix and in St. Louis from Gannett Co. and Sander Media LLC for $407.5 million in cash, it was announced this morning.

The stations are among those Gannett is acquiring from Belo Corp.They are being spun off to comply with FCC and Justice Department requirements.

As part of the sale, Gannett sidecar company Sander Media will sell CBS affiliate KMOV St. Louis (DMA 21), which Sander Media will acquire upon close of the Gannett-Belo transaction. In addition, Gannett will convey certain other assets that are needed to provide services to KMOV, which Gannett will acquire from Belo upon close of the Gannett-Belo transaction.

Gannett said the sale to Meredith, upon government approval, “will satisfy Gannett’s and Sander Media’s obligations under the previously announced proposed consent decree with the U.S. Department of Justice in connection with Gannett’s acquisition of Belo.”

Under a separate agreement, independent KTVK and CW affiliate KASW Phoenix (DMA 12), will be sold to Meredith. At the closing, Meredith will convey KASW to SagamoreHill, which, through its affiliates, owns and operates two television stations in two markets.Meredith will provide certain services for the operation of KASW pursuant to a customary services agreement with SagamoreHill in accordance with Federal Communications Commission local television ownership rules.”

Gracia Martore, president-CEO of Gannett, said: “We are very pleased to have reached this agreement with Meredith. Meredith is a highly respected multi-media company which shares our commitment to outstanding local journalism, and we are confident that these stations will be in good hands. We are also pleased to have reached an agreement with attractive terms for our shareholders, as these sales will significantly lower the effective purchase price for Belo while reducing only minimally the expected synergies associated with the Belo transaction, which we expect to close promptly.”

Gannett said the sale of these stations “is expected to have an impact of less than $2 million on Gannett’s previously disclosed projected annual run-rate synergies of $175 million within three years of closing of the Belo transaction. Gannett’s pending acquisition of Belo and the sale of these stations to Meredith together are expected to generate significant free cash flow and be accretive to non-GAAP earnings per share by approximately $0.43 in 2014.”

The company added that it expects to use the proceeds of the sale to reduce debt and for other purposes consistent with Gannett’s stated capital allocation strategy. Gannett still owns stations in both markets — KSDK St. Louis (NBC) and KPNX Phoenix (NBC).

Meredith chairman-CEO Stephen M. Lacy said: “These acquisitions are consistent with our successful Total Shareholder Return strategy and will be immediately accretive to earnings, excluding upfront transaction costs. These are high-performing stations and will add to our already strong cash flow. We will increase our presence in the large and growing Phoenix market, where we own KPHO, the CBS affiliate. KMOV (CBS) in St. Louis adds another Top 25 market to our portfolio, and when combined with KCTV (CBS) in Kansas City, gives us powerful local brands in two of the Midwest’s top news and sports markets.”

Meredith said that in the first full year after closing, “the stations are expected to generate combined revenues of $105 million to $115 million, and be accretive to run-rate earnings per share by $0.16 to $0.18. The transactions will be structured to deliver a step-up in the tax basis of the acquired assets.  Including the present value of this tax benefit, and estimated annual synergies, the pro forma purchase price multiple is approximately 8x estimated average 2012 and 2013 EBITDA.”

Meredith said it intends to finance the transactions with new bank and private placement financing and expects the deals to close during the first half of calendar year 2014.