The McLean, Va., media company said Thursday it will acquire Belo for $13.75 a share in cash, or about $1.5 billion, and assume $715 million in existing debt, for an enterprise value of right above $2.2 billion. Belo's enterprise value as of the previous close was $1.8 billion.
At that per-share takeout price, Gannett is paying a 28.1% premium to Belo's $10.73 close on Wednesday. Gannett is also giving Belo investors a better deal than the stock market has in more than five years. The planned acquisition comes at a point Belo hasn't ended above since the A.H. Belo (AHC) part of the company started trading separately on Feb. 11, 2008. A.H. Belo owns newspapers including The Dallas Morning News and The Providence Journal.
The move is a big bet on broadcast for Gannett. The company said it will become the fourth-largest owner of major network affiliates CBS, ABC and NBC in the U.S., and have access to almost one-third of the nation's households. With Belo's stations, Gannett's count will rise to 43 from 23 currently, including stations it will service through shared services or similar arrangements. It will have 21 stations in the top 25 markets.
Belo says its 20 stations, affiliated with the three broadcasters mentioned above, as well as Fox and CW, reach more than 14% percent of American households.
FactSet data show Belo's best close since the split with A.H. Belo was $13.64, and that came two days after the new trading arrangement. Recently, the stock was up 27.3% to $13.66. Between May 23, 2008, and April 9 this year, it didn't record a single close above $10. Again though, investors weren't complaining on either side. Belo and Gannett were the Nos. 1 and 2 percentage gainers on the NYSE 90 minutes into the session.
Source: Belo Corp., FactSet. Data in millions of $.
Gannett's bid for Belo implies a price-to-earnings ratio of 16 on the profit of 86 cents expected for the coming four quarters, both high for the stock and for similar companies in the industry. Belo's average next-12-months multiple over the past five years is 9, whereas the peak in that time was 17.4. Lin TV (TVL), Nexstar Broadcasting (NXST) and Sinclair Broadcast (SBGI) trade at forward multiples of 9.8 to 14.1, according to FactSet. Seattle-based acquisition target Fisher Communications (FSCI) carries a 23.5 P/E.
With this being the industry's second notable tie-up in a matter of days, TV stocks were trading higher on hopes the purchases might carry on, led by a 9.7% advance in Lin. Earlier this month, Media General (MEG) said it would acquire New Young Broadcasting, forming a station owner with 30 network affiliates in 27 U.S. markets. Combined, those two would have had revenue of $605 million last year. Already before that, Sinclair said in April it would buy Fisher.
Belo had revenue of $714.7 million last year. Gannett recorded a top line of $5.4 billion, while broadcast revenue totaled $906 million, around 17% of the overall figure. Gannett expects to close the transaction by the end of the year, assuming it gets shareholder approval, antitrust clearance and the go-ahead from the Federal Communications Commission.
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