Belo to split; Shive heading new TV company


Belo Corporation is set to become the nation’s largest pure play television company (assuming that Hearst-Argyle goes private), splitting itself by spinning off its newspaper business into a new company, to be called A.H. Belo Corporation. Wall Street welcomed the announcement, pushing the company’s stock up sharply. Bear Stearns analyst Victor Miller noted that he had been advocating such a split since January. Still, he was a bit surprised to see it actually happen and immediately upgraded the stock to "Outperform" from "Peer Perform." Why split in two? Miller noted that Belo gets about 70% of its EBITDA from television, but its stock has been trading at a multiple barely above that of the pure play newspaper companies. "With BLC getting ‘marked to market,’ we believe that the shares should trade at 25.00+, offering 40%+ upside from here.  The company’s seeming reluctance to explore this potentiality and cited regulatory issues (which we thought were not issues) held us back from this earlier," Miller told clients.

When the split comes, which is expected to be in Q1 of 2008, Dunia Shive, currently President and COO of Belo, will become President and CEO of Belo Corporation, the surviving TV company. Robert Decherd, currently Chairman and CEO, will become Non-Executive Chairman. Belo Corporation will own and operate 20 television stations reaching 14% of US TV households and their associated Internet sites, plus two regional cable news channels: Northwest Cable News in the Pacific Northwest and Texas Cable News. The company will have approximately 3,200 employees and annual revenues of more than 750 million.

Decherd, meanwhile, will be Chairman, President and CEO of the spin-off, A.H. Belo Corporation. It will own The Dallas Morning News, The Providence Journal and The Press-Enterprise, which serves the Inland Empire region of California, along with their associated Internet sites. It will have about 3,800 employees and annual revenues of approximately 750 million.

TVBR observation: You don’t have to be involved in the newspaper business to know that it is going through tough times. TV, meanwhile, is on the upswing. Yesterday’s price surge makes it clear that investors are excited about being able to own shares of the Belo television group without the drag of the newspaper side. By the way, the TV side will hold onto all of the company debt, over 1.2 billion, so the newspaper company will start out debt-free. Just how much more attractive is the TV business? In calculating the estimated values of the new pure play companies, Vic Miller applied a multiple of 12 times estimated 2007 EBITDA to the TV company and only 7.5 times to the newspaper. Exactly how many shares of the new company current shareholders will receive is yet to be determined, but if you assume it is one for one (102.9 million shares of each company), Miller estimates that the newspaper company shares are worth 6.52 each and the TV company shares 18.88, for an implied value of 25.40 per share for the pre-split company.