Twin pre-market announcements involving Nexstar Media Group‘s required divestitures in order for the company to complete its merger with Tribune Media are sending shockwaves across the broadcast TV industry.
Why? Nineteen stations are being spun, with two big TV companies involved.
The newly formed entity between Apollo Group and Cox Media Group, as had been widely expected, is not one of them.
In the first mega-deal, TEGNA — the company formerly known as Gannett — is picking up 11 Nexstar stations across eight markets for $740 milllion.
The stations being spun to TEGNA are as follows:
WTIC/WCCT — FOX/CW affiliates in Hartford-New Haven, CT
WPMT — the FOX affiliate in Harrisburg-Lancaster-Lebanon-York, PA
WATN/WLMT — ABC/CW affiliates in Memphis, TN
WNEP — the ABC affiliate in Wilkes Barre-Scranton, PA
WOI/KCWI — ABC/CW affiliates in Des Moines-Ames, IA
WZDX — the FOX affiliate in Huntsville-Decatur-Florence, AL
WQAD — the ABC affiliate in the Quad Cities of Davenport, IA and Rock Island-Moline, IL
KFSM — the CBS affiliate in Ft. Smith-Fayetteville-Springdale-Rogers, AR
The transaction is structured as an asset purchase, and TEGNA says it represents “a compelling purchase price multiple for the company of 6.7 times expected average 2018/2019 EBITDA, including run rate synergies and net present value of tax savings (or 7.7 times, prior to tax savings).”
TEGNA expects the transaction to be Earnings Per Share accretive within a year after close and immediately accretive to free cash flow per share, providing support for the high end of the previously disclosed 2019/2020 free cash flow range of 18% to 19% of revenue.
TEGNA will finance the transaction through the use of available cash and borrowing under its existing credit facility.
Upon close, leverage will increase to approximately 4.3 times; free cash flow will subsequently be used to reduce debt, bringing leverage to well under 4 times by December 31, 2020. Share repurchases will also be suspended during that period.
J.P. Morgan and Greenhill & Co. are acting as financial advisor and Nixon Peabody LLP, Jenner & Block LLP and Hughes Hubbard & Reed LLP are acting as legal counsel to TEGNA in connection with the proposed transaction.
SCRAPPY BUYER BUILDS AGAIN
In the second transaction, The E.W. Scripps Company is acquiring eight television stations in seven markets from Nexstar.
But, Scripps is entering the nation’s No. 1 market with this deal, while gaining a bigger presence in South Florida.
Scripps is acquiring the following stations from Nexstar:
- WPIX — the Tribune flagship CW affiliate in New York
- KASW — the CW affiliate in Phoenix, creating a duopoly with ABC affiliate KNXV-15 and pitting Scripps against Meredith Corp.’s CBS KPHO-5 and news-focused unaffiliated KTVK-3
- WSFL — the CW affiliate in Miami–Fort Lauderdale many expect to take on FOX affiliation as an ongoing spat between that network and Ed Ansin-owned WSVN-7 in Miami ignited rumors that FOX could buy WSFL. FOX ruled out adding O&Os last week. This makes WSFL Scripps’ second station in South Florida, as the company operates heritage NBC affiliate WPTV-5 in West Palm Beach
- KSTU, the FOX affiliate in Salt Lake City
- WTKR, the CBS affiliate, and WGNT, the CW affiliate, in Norfolk
- WTVR, the CBS affiliate in Richmond
- WXMI, the Fox affiliate in Grand Rapids
The purchase price is $505 million for six markets and $75 million for WPIX-11.
IN A NEW YORK MINUTE
Why is WPIX in a separately filed agreement?
Scripps has granted Nexstar the option to buy back WPIX, with an option exercisable from March 31, 2020, through the end of 2021.
This could set alarms at the FCC, as a similar structure was created for now-aborted agreements that would have allowed two Tribune stations to eventually return to Sinclair Broadcast Group following their sale. Granted, that deal involved entities closely affiliated with Sinclair. But, the assumption that a loosening of local TV ownership rules by the Commission could put this particular transaction into question.
Including WPIX-11, the acquisition grows the Scripps local television station footprint to 59 stations in 42 markets, with a reach of nearly 30% of U.S. TV households. It also diversifies Scripps’ network affiliations, adding two CBS stations, two Fox stations and four CWs, and puts Scripps in Utah and Virginia for the first time.
But, the addition of a New York station for Scripps comes too late for its signature daytime talk show Pickler & Ben. As reported by RBR+TVBR, Scripps President/CEO Adam Symson noted during the company’s Q4 2018 earnings call that the show is being “sunset” at the end of the year — namely due to clearance issues in the top markets.
In prepared comments, Symson said of the Nexstar deal, “This acquisition represents another step in our plan to improve the depth, reach and durability of our broadcast television station portfolio while adding nicely to the company’s free cash flow generation. These stations allow us to rebalance our portfolio with meaningful assets – at an efficient price ahead of a robust political advertising season.”
CONTINUED GROWTH FOR SCRIPPS
Scripps’ Nexstar move follows its recent purchase of ABC television stations formerly owned by Raycom Media in Tallahassee, Fla., and in Waco, Texas. Further, its acquisition of 15 television stations in 10 markets from Evening Post-owned Cordillera Communications awaits FCC approval.
The Scripps acquisition of the Nexstar-Tribune stations is expected to close at the same time as the Nexstar-Tribune merger, in late Q3 or early Q4 2019 — as is the case with TEGNA’s deal.
The acquisition of the Nexstar stations is expected to be financed through a mix of term loans and unsecured debt and will bring Scripps’ total debt to $1.85 billion, or roughly one-third of the debt iHeartMedia will have when it exits bankruptcy.
Financing is being led by Morgan Stanley Senior Funding Inc. and Wells Fargo.
Methuselah Advisors and Morgan Stanley & Co. LLC acted as financial advisors and BakerHostetler acted as legal counsel for Scripps.