Nexstar’s Premium Pluck: Tribune Media

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On Sunday evening, Jews across the world celebrated the miracle of Hanukkah.


In Irving, Texas and in Chicago, a different sort of miracle had been finalized, and leaked to news organization Reuters.

Nexstar Media Group has just accomplished something Sinclair Broadcast Group was unable to do.

A definitive merger agreement has been reached between Nexstar and Tribune Media that sees the Dallas-area broadcast company formed a quarter-century ago with the purchase of a single Scranton-Wilkes Barre station become the nation’s largest owner of TV stations — bigger than Gray Television following its still-to-be approved merger with Raycom Media.

Reuters reported that the deal was worth roughly $4.1 billion. It turns out that, including the assumption of Tribune Media’s outstanding debt, the transaction is valued at $6.4 billion.

How is Nexstar, led by President/CEO Perry Sook — who also serves as Chairman of TVB, the television industry’s advertising association — paying for Tribune?

An all-cash deal has been consummated, and Nexstar will pay a premium: It has offered to buy all outstanding shares of Tribune Media at $46.50 per share.

That’s a windfall for investors who have stuck with Tribune through a most tumultuous year — one that most expect to end with Sinclair Broadcast Group closing on its proposed $3.9 billion merger.

That deal, as all know, was aborted in early August after FCC Chairman Ajit Pai took the unprecedented step of releasing a statement that put into question Sinclair’s candor and truthfulness regarding how it was planning to handle required divestitures. With the transaction heading to an Administrative Law Judge for review, Tribune pulled the plug.

Then came a parade of new suitors, including Apollo Global Management, which emerged during the last week of November as a top suitor after it “teamed up with” the Brian Brady-led Northwest Broadcasting. 

The Apollo/Northwest bid was intriguing, as Apollo in mid-July as rumors emerged that Black’s buyout firm was interested in making a deal with Sook and his Nexstar Media Group. The reports had Apollo joining P2 Capital Partners in investigating a bid; P2 has a very small stake in Nexstar.

Then came the implosion of the Tribune/Sinclair deal, putting Sook in the driver’s seat as Nexstar now had the ability to strike a deal with the owner of WGN-9 in Chicago, WPIX-11 in New York, KTLA-5 in Los Angeles and a host of other marquee TV stations.

While the Apollo/Northwest bid was perhaps the most solid option to that of a Nexstar merger, other notable suitors emerged in recent weeks. Among those with bids for Tribune was Byron Allenwhich the New York Post reported that he was “seriously interested” in. “Allen’s rival bid has backing from Citigroup and Goldman Sachs,” said Post reporter Keith J. Kelly, who writes the “MediaInk” column.

The Post also reported that West Palm Beach-based ION Media, Cerberus Capital and the Tom Hicks-led Hicks Equity Partners submitted a joint bid.

With news of the Nexstar-Tribune Media wedding announcement filtering across the business world late Sunday, pre-market trading for both Tribune and Nexstar shares skyrocketed. For TRCO, a 9.8% jump from Friday’s close of $44.21 put Tribune in a strong out-of-the-gate position as the NYSE opens Monday at 9:30am Eastern.

And, it sets the stage for investors to get in below $46.50 as quickly as possible, to ensure it gains as best as possible from Nexstar’s 15.5% premium based on Friday’s closing price of $40.26.

What’s interesting about Nexstar’s pricing is that it establishes long-term faith in Tribune’s assets: TRCO’s year-to-date peak is $43.58, seen in the last week of January. On July 16, shares sank to $33.05 following the release of Pai’s statement that would lead to the ultimate dissolution of Tribune’s merger with Sinclair.

Nexstar is well-aware of that date in history, and notes that its all-cash stock bid for Tribune represents a 45% premium to that closing price — the result, Nexstar was careful to note, of Pai’s public statement regarding his intention to circulate a Hearing Designation Order for Tribune Media’s previously announced transaction “with a third party.”

That would be Sinclair, which is now reportedly looking to grow by obtaining all or part of the regional sports networks that Twenty-First Century FOX must divest in order to complete its acquisition by The Walt Disney Co.

With Nexstar at the altar, Tribune Media shareholders will also be entitled to additional cash consideration of approximately $0.30 per month if the transaction has not closed by August 31, 2019 — pro-rated for partial months and less an adjustment for any dividends declared on or after September 1, 2019.

Such a delay may not be likely, as the transaction will likely be “cleaner” than the plan Tribune had with Sinclair. Both Nexstar and Tribune’s boards have signed off on the merger, and closing is expected by the first of September 2019.

Once the deal closes, Nexstar says it will likely be immediately accretive to its operating results inclusive of expected operating synergies of approximately $160 million in the first year — following the completion of the transaction and planned divestitures.

What stations Nexstar will need to give up in order to complete the Tribune deal are today a guessing game.

“Nexstar intends to divest certain television stations necessary to comply with regulatory ownership limits and may also divest other assets which it deems to be non-core,” the company said early Monday, prior to the Opening Bell on Wall Street.

All after-tax proceeds from such asset sales are expected to be applied to leverage reduction, Nexstar added.


What will a combined Nexstar Media Group and Tribune Media look like? RBR+TVBR explores the combination here.


 

What is known is that the “new” Nexstar will hit the current national TV audience cap of 39% for a broadcast television station company, pro-forma for anticipated divestitures and reflecting the controversial “UHF discount,” allowing a broadcast TV company to reduce by 50% the audience it enjoys from a UHF station. The Pai Commission reinstated the 1980s-era legislation, Republican leadership argues, because it was improperly removed by the Democratic-led FCC under predecessor Tom Wheeler. As such, its restoration allows the FCC to reconsider all of its ownership rules as Pai seeks to continue his “weed-wacker”-fueled “modernization” efforts.

The transaction is not subject to any financing condition; Nexstar has received committed financing for the transaction from financial advisor BofA Merrill Lynch, as well as Credit Suisse and Deutsche Bank.

Kirkland & Ellis LLP and Wiley Rein LLP are acting as legal counsel to Nexstar Media.

Moelis & Company and Guggenheim Securities are acting as financial advisors to Tribune Media, and Debevoise & Plimpton LLP and Covington & Burling LLP are acting as its legal counsel.

While completion of the transaction is subject to approval by Tribune’s shareholders, it would be a huge shock if a dissident shareholder were to emerge and lead an effort to thwart the deal.

The merger is also subject to customary closing conditions, including approval by the FCC, and satisfaction of antitrust conditions.

As of 9:49am Eastern, Nexstar shares were rocketing toward a new record high, reaching $85.12 on moderate volume. At the Closing Bell, NXST sat at $88.32, up $5.68 from Friday’s close.


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