(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
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.
SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS:
- 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
- Tribune announcement: link.reuters.com/myr39t
- Reuters: Tribune to buy 19 local TV stations for $2.73
Across the spectrum [ID:nL2N0EP0QH]
- For previous columns by the author, Reuters customers
can click on [GOLDFARB/]
(Editing by Antony Currie and Martin Langfield)
Keywords: BREAKINGVIEWS TRIBUNE/TELEVISION
(C) Reuters 2012. All rights reserved. Republication or redistribution of
Reuters content, including by caching, framing, or similar means, is
expressly prohibited without the prior written consent of Reuters. Reuters
and the Reuters sphere logo are registered trademarks and trademarks of
the Reuters group of companies around the world.