Major M&A news hit the media space this morning as
Nexstar Media (NXST 84.90, +2.26, +2.73%) announced that it will acquire Tribune Media (TRCO 44.22, +3.96, +9.84%) for
$46.50 per share in cash, for a total value of $6.4 bln, including the
assumption of Tribune Media's outstanding debt. This represents a 15.5% premium
over Friday's close. The transaction has been approved by the boards of
directors of both companies and is expected to close late in 3Q19.
Nexstar Media focuses on delivering local content via television broadcasting and portal websites, which offer additional verticals for consumers and advertisers. It operates 174 television stations that reach a combined 100 markets, or nearly 39% of all U.S. television households; included in its portfolio are primary affiliates of NBC, CBS, ABC, FOX, MyNetworkTV, and The CW.
Tribune Media delivers news, sports, and entertainment programming via local television stations, a national cable network, and various digital and online sources. The company’s 42 local television stations are housed within the company’s Broadcasting segment; those television stations reach an estimated 50 mln households in the U.S. Its national entertainment cable network, WGN America, reaches more than 77 mln households, and its variety of digital apps and websites extends its market reach and furthers its widespread accessibility still further. Also belonging to the company’s portfolio are Chicago's WGN-AM, the national multicast networks Antenna TV and THIS TV, and Covers Media Group, a source of online sports betting information. Tribune Media furthermore owns a number of real estate properties across the U.S. and holds a variety of investments, including a 31% interest in Television Food Network (Food Network and Cooking Channel).
Thus, the proposed transaction combines two leading local media companies with complementary national coverage that will together reach approximately 39% of U.S. television households pro-forma for anticipated divestitures and reflecting the FCC's UHF discount. The combined entity will be one of the nation's premiere providers of local news, entertainment, sports, lifestyle, and network programming, with pro-forma annual revenue of $4.6 bln and pro-forma adjusted EBITDA of $1.7 bln.
What motivated the deal? In addition to generating expected synergies ($160 mln in first year) from the enhanced scale of the combined broadcast and digital media operations, this transaction increases Nexstar's audience reach by approximately 50%. Furthermore, TRCO will further expand Nexstar's geographic diversity, which now will serve 18 of the nation's top 25 markets and 37 of the top 50 markets. The deal will bump average annual free cash flow in the 2018/2019 cycle to approximately $900 mln, or $19.50 per share.
A potential wrinkle is passing regulatory muster from the FCC as the U.S. government likes to see competition maintained in media markets. Sinclair Broadcasting's (SBGI) bid to acquire TRCO in August 2018 was scuttled when the FCC had concerns over the deal. Divestitures of some kind will likely be required before the transaction is permitted. Nexstar believes it has a clear path to closing, but there will be uncertainty ahead. The FCC tends to be quite stringent on media TV station combinations.
If the deal does go through, the combined company would be the largest television station serving local markets in the U.S., passing Sinclair as the largest operator. This would represent the latest in a series of major changes for TRCO. In 2014, Tribune Media spun off its publishing division (Chicago Tribune, LA Times, and others) while retaining its broadcast and real estate assets, and more recently, as mentioned above, it spent more than a year expecting to be merged with Sinclair, but that deal wilted under exigent regulatory scrutiny and divestiture requirements, and TRCO officially terminated the merger in August of this year, with legal action following. Our sense is that the Nexstar deal is more likely to succeed than the Sinclair courtship, but as ever, time will tell. Keep an eye on other media stocks following this news, particularly broadcasters. It will be interesting to see if competing bids emerge from other suitors.
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