Breakingviews:Tribune's TV deal should spawn repeats
(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
By Jeffrey Goldfarb
NEW YORK, July 1 (Reuters Breakingviews) - U.S. television bosses are stealing a page from their copycatting colleagues on the programming side. Tribune (TRBAA.PK), the newspaper publisher recently out of bankruptcy protection, on Monday disclosed plans to buy 19 TV stations for $2.7 billion. The deal comes fast on the heels of Gannett's (GCI.N) intent to acquire broadcaster Belo (BLC.N). Such combinations offer healthy revenue synergies and often, as for Tribune, tax benefits, too. Expect more repeats.
A relatively new kind of fee revenue is driving the consolidation. Cable and satellite operators have been paying to carry local stations, giving bigger owners stronger negotiating power. They also typically have written into their contracts that any new additions to their stable of stations will get paid the higher rate. That's largely how Gannett found enough synergies to cover nearly the entire cost of Belo's $1.4 billion equity value.
Tribune, which would leapfrog rivals to become the country's biggest station owner, expects similar advantages. It is targeting $100 million of synergies within five years. What's more, by structuring the transaction with Oak Hill Capital-owned Local TV Holdings as a purchase of assets instead of stock, it reaps significant tax advantages. Assuming the acquisition price can be spread over 15 years, it would create $180 million of annual deductions. At a 40 percent tax rate, that's $70 million of savings each year.
Like the proliferation of like-minded TV talent competitions, mergers in the industry have followed a similar script. Sinclair Broadcasting Group, Lin Television, E.W. Scripps and Nexstar Broadcasting Group have spent billions of dollars over the last couple of years buying network affiliates. Berkshire Hathaway-backed (BRKa.N) Media General (MEG.N) last month struck a stock-swap deal with New Young Broadcasting NYBH.PK to create an enlarged group. Politico owner Allbritton Communications is shopping its stations.
The Gannett deal may have sealed the acquisition binge's fate, with the buyer's shares rising by a greater percentage on the day of announcement than the seller's. That sort of result is hard to ignore. So too is the trend in retransmission fees. Analyst SNL Kagan forecast they would grow for station owners from about $2.4 billion last year to more than $6 billion by 2018. With newspaper publishers seeking refuge in television, the competition among buyers is also accelerating. That means TV investors, like couch potatoes, can expect more of the same.
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- Tribune said on July 1 it had agreed to buy 19 TV stations from Local TV Holdings for about $2.7 billion. The deal will make Tribune, with a total of 42 stations, the largest U.S. commercial TV station owner, Tribune said.
- The combination is expected to generate over $100 million in annual synergies within five years. Tribune also said it received committed financing of up to $4.1 billion from JPMorgan Chase, BofA Merrill Lynch, Citigroup, Deutsche Bank and Credit Suisse, including a new $300 million revolving credit facility and the capacity to allow Tribune to refinance its existing debt.
- Tribune announcement: link.reuters.com/myr39t
- Reuters: Tribune to buy 19 local TV stations for $2.73 billion [ID:nL3N0F72DX]
Across the spectrum [ID:nL2N0EP0QH]
- For previous columns by the author, Reuters customers can click on [GOLDFARB/]
(Editing by Antony Currie and Martin Langfield)
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