Consolidation: ‘A Very Necessary Activity’

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By Adam R Jacobson
RBR + TVBR


chris-ripley-sbgiWith the shift of longtime Chairman/CEO David Smith to the role of Executive Chairman, his first step on the road to retirement, Sinclair Broadcast Group has given the keys to its own “Talented Mr. Ripley.”

With boyish looks and time spent in the California sun as head of UBS Investment Bank’s Los Angeles office and managing director of the bank’s Global Media Group, the University of Western Ontario graduate presided over his first quarterly conference call as the President/CEO of North America’s No. 1 owner of television stations by VHF and UHF count.

What’s Chris Ripley most enthused about? Growth, by way of acquisitions.

“I am very optimistic about the new FCC and the new leadership of Ajit Pai,” Ripley said in a conference call with Wall Street analysts on Wednesday (2/22). “I anticipate that more consolidation will happen … it is a necessary activity for the industry.”

Answering an analyst’s question during the hour-long call, Ripley noted that buying more stations afford synergies on the cost side of Sinclair’s operation, among other positives.

“This next wave of consolidation will, I predict, allow broadcasters to compete more effectively with the telecom and cable players,” he said. “There is long-term strategic benefit for the next wave of consolidation.”

In outlining how Sinclair could grow, Ripley pointed to CBS Corp. That company, which is spinning off its radio division to Entercom, noted that it would be interested in adding TV stations in strategic markets — taking a selective approach that would largely involve NFL markets with teams that have their games airing on CBS.

Marci Ryvicker, Managing Director at Wells Fargo Securities in New York, inquired about whether Sinclair was considering station swaps, or a merger and acquisition opportunity, when it came time to expand its holdings.

Sinclair brass was not committed to either option, and would only say that further consolidation puts Sinclair — and its competitors — “on an even playing field with other forms of communication.”

Of course, it all depends on when — not if — the FCC makes the necessary moves to amend its national ownership caps.

“We have to wait and see what will happen, but we think it will happen fairly quickly, and I do expect some transformative deals to come from that,” Ripley said.

Asked about the market size that Sinclair would consider (it is absent from markets such as San Francisco, Los Angeles, Miami and Tampa), and how high it was willing to take its leverage, Ripley said that high 3x to low 4x is the target.

“We have some room to go up for a bigger deal, but the intent would be to go back to that target if it did go up for that transaction,’ he said.

Another analyst asked Sinclair’s executive team how it was progressing in getting its stations and nascent networks on more Over-The-Top (OTT) platforms. With an agreement with CBS All Access already forged, Ripley explained, “It’s a lengthy process to work some of these things out.” The key concern for Sinclair? “Assuring compensation is in a similar spot to the MVPD marketplace and that we are not disadvantaging ourselves in the long term from that,” Ripley noted.

Where are discussions happening? “We are engaged with the affiliate board and directly with the OTT players,” he added.

Meanwhile, Ripley confirmed that the estimated $313 million of gross proceeds from the National Broadband Plan Spectrum Auction came from three stations, representing “a strong yield” for Sinclair.

Yet, he remarked, “Forward price is not representative of the true value of the spectrum.”

That’s why, at the end of the day, his company considers lower-band spectrum to be “beachfront property,” and as its best use is for broadcasting, “that is what we intend to do with it with ATSC 3.0,” Ripley said.