If you thought the merger of Sinclair Broadcast Group and Tribune Media was a bit of a grandiose plan, you may not be a fan of what Gray Television and Raycom Media have teamed up to form.
When all is said and done, the new Gray TV will reach 24% of U.S. TV households through its 142 stations across 92 DMAs.
However, station spins are on the way in order to meet federal regulatory approval in markets where Gray and Raycom each own stations.
Further, the proposed $3.6 billion deal announced early Monday (6/25) would create the third-largest TV broadcast group in the U.S.
As company executives noted in their merger announcement, there are many positive synergies between Raycom and Gray — including their respective media footprints.
There are nine overlap markets, however.
“To facilitate prompt approvals and, therefore, the transaction closing, Gray has elected to divest television stations in each of the nine overlap markets rather than seek regulatory approvals of potentially permissive combinations in certain markets,” the company announced early Monday.
This should boost the chances that Gray’s combination with Raycom Media will churn through the Department of Justice and/or FCC at a swifter pace than Sinclair/Tribune Media or even Nexstar Media Group‘s merger with Media General, finally completed at the start of 2017.
Specifically, Gray intends to retain and divest stations in the overlap markets in a manner in which just one Raycom station in the nine DMAs will be kept:
Saying goodbye to top-rated WTOL-11 in Toledo, Ohio, in favor of ABC-affiliated WTVG-13 may have been questioned by some. But, it appears Raycom and Gray want to make it easier for a buyer to get a group of stations presently under the same ownership — rather than make any spinoffs more complex.
With the retention of Raycom’s WALB-10 in Albany, Ga., Gray gains a top-rated operation with a large local news presence while shedding a laggard in the overall Nielsen ratings for this Deep South market — Valdosta-licensed CBS affiliate WSWG-44.
Keeping WALB-10 is especially meaningful for Gray: It was the very first TV station that the company ever owned, from 1954 until 1998. Because of the FCC’s newspaper/broadcast cross-ownership rule, Gray was given the choice of selling WALB-10 or keeping the Albany Herald newspaper. Gray chose to keep the newspaper, only to divest all of its newspapers a few years later.
WALB-10 was sold to Cosmos, which then sold the station to Raycom.
Who will be purchasing the spinoff stations?
Wells Fargo Securities is ready to begin a formal process to market the divestiture stations “to qualified third parties.”
The divestitures may take the form of cash sales, swaps involving other television stations, or a combination of cash and swaps, Gray says.
Want to get in on the action? You can. Gray says that interested parties should contact Wells Fargo Securities directly and should not contact Gray or Raycom about the divestiture opportunities.
The planned divestiture stations collectively represent less than 4% of the operating cash flow of the combined company (excluding Raycom’s Community Newspaper Holdings Inc. and digital ad platform PureCars; Raycom is in the process of selling or spinning off these entities and Gray is not acquiring them).
Excluding CNHI, which owns print publications and information products across 23 states, and PureCars, the combined revenue of Gray and Raycom on a blended 2016/2017 basis would total roughly $2 billion.
Cooley LLP and Jones Day served as legal counsel for Gray.
Stonebridge Capital served as financial advisor and Robinson Bradshaw and Covington & Burling served as legal counsel for Raycom.
‘A COMPELLING COMBINATION’
A 9am Eastern conference call on Monday featuring key Raycom and Gray Television executives including Gray EVP/Chief Legal and Development Officer Kevin Latek discussed the excitement over the deal.
“Frankly, we can’t wait to get started,” soon-to-be co-CEO and Executive Chairman Hilton Howell III said to investors and analysts dialed in to the pre-Opening Bell call.
And, in a hint as to just what was being discussed at the 2017 NAB Show between Howell and Raycom President/CEO Pat LaPlatney, Hilton said the talks that led to the $3.6 billion merger announcement amount to the “smoothest and friendliest transactions that Gray has ever experienced.”
LaPlatney could not agree more. “The more we learn about each other’s cultures, we are convinced that this is the right fit, and at the right time,” he said.
Raycom is an employee-owned company. Together, as a part of Gray, “we will be a stronger and greater force in the broadcast television industry,” LaPlatney said.
In response to a query from John Janedis, Managing Director of Equity Research for U.S. Media for Jefferies, about government scrutiny over the deal, Gray’s Latek said, “This transaction complies with every FCC action on ownership audience reach, going back to 1985. We think this is the cleanest transaction that we could present to the FCC and DOJ and we are very confident that this will be on a quick path to closing this year.”
What does the new Gray TV look like, post-merger?
Howell spoke highly of adding Cleveland to its market roster. There, Raycom has grown WOIO-19 into one of the nation’s leading non-O&O CBS affiliates. It is also grabbing MyNetwork TV affiliate WUAB-43 in Cleveland.
The Charlotte market was also noted as a major addition to Gray’s DMA roster, and in the Queen City it is grabbing WBTV-3, the CBS affiliate.
But, smaller markets including Sarasota-Bradenton, Fla., were heralded by Gray. That’s noteworthy, as Raycom has only been in the mini-market tied to the Tampa-St. Petersburg DMA since May 1, 2017. That’s when Raycom closed on its roughly $55 million acquisition of WWSB-7, an ABC affiliate in Sarasota, and WTXL-27, also an ABC affiliate, in Tallahassee, Fla., from Calkins Media Group.
As noted above, WTXL will not be kept by Gray, putting the station on the market yet again and giving it its third owner in less than two years.
Given the anticipated political ad dollars in Arizona and Hawaii, Howell also likes his entry into the Tucson and Honolulu DMAs, respectively.
In the Grand Canyon State, well to the south where the University of Arizona’s main campus lies, Gray is grabbing another CBS affiliate — Raycom’s KOLD-13.
What’s also in the mix is Raycom’s Shared Services Agreement dating to December 2015 that allows it to provide news, marketing and engineering services to TEGNA-owned FOX affiliate KMSB-11 and MyNetwork TV KTTU-18. KTTU is owned by Tucker Broadcasting.
In the Aloha State, Raycom has a dominant position — and Gray will benefit from owning Hawaii News Now, the operation tied to duopoly KGMB-5, the CBS affiliate, and KHNL-13, the NBC affiliate. Raycom also has a Shared Services Agreement with KFVE-9 in Honolulu, a nonaffiliated station owned by private equity firm MGC Capital Corp.
Additional reporting from RBR+TVBR in Haiku, Hawaii.
