TV station trading is finally picking up. Coming just weeks after the recent deal by Sinclair to buy the Four Points group for $200 million, McGraw-Hill announced that it was selling its TV division to the E.W. Scripps Company for $212 million.
McGraw-Hill put the TV group up for sale in June, deciding that it was a non-core business. That was even before the recent decision to split what remains of McGraw-Hill into two public companies.
McGraw-Hill’s Broadcast Group consists of only four full-power stations, all ABC affiliates: KMGH-TV Denver, KGTV-TV San Diego, WRTV-TV Indianapolis and KERO-TV Bakersfield, CA. It also has Azteca America affiliates on digital multicast channels and/or LPTVs in Denver, Fort Collins, Colorado Springs, San Diego and Bakersfield.
According to Scripps, the deal is structured as a purchase of stock but will be treated as a purchase of assets for tax purposes, resulting in tax deductions created through the transaction that will be used by Scripps to reduce the net cash cost of the acquisition. The transaction is expected to be modestly accretive to Scripps’ earnings in the first full year of operations of the acquired stations, the buyer said.
Scripps expects an immediate tax benefit of $20-25 million because of the structure, reducing the effective price to around $190 million. That works out to a broadcast cash flow multiple of eight times, said Scripps CFO Tim Wesolowski, but he said it will quickly drop to an even lower multiple as retransmission fees ramp up.
Based on those figures, it appears the multiple from the McGraw-Hill point of view is about nine times.
“Because of the current low-interest-rate environment, Scripps intends to finance the transaction with new debt and has secured committed financing for the purchase price. Choosing debt for the acquisition allows the company to preserve its financial flexibility. Scripps had $153 million in cash on its balance sheet as of August 31, 2011,” the company stated.
“This is a terrific opportunity to enter some of America’s most dynamic media markets and tap into the growing Spanish-language marketplace at a very attractive price,” said Rich Boehne, Scripps President and CEO. “The McGraw-Hill stations fit well with our strategy to create economic value through high-quality news and information content that serves both consumers and advertisers through linear television and the exploding array of digital communication devices.
McGraw-Hill was reported to have paid $50 million for the four stations in 1972 when they were purchased from Time-Life. Other than adding some LPTVs in its markets, McGraw-Hill never expanded in television.
Scripps already has 10 ABC affiliates in its portfolio of 19 stations, stretching from Baltimore to Phoenix. It will move ahead of Hearst, which is currently the largest ABC affiliate group at 13 stations.
RBR-TVBR observation: Buyers are stepping forward when station owners decide to take the plunge and sell, but multiples are staying in the single digits, well below pre-recession levels. McGraw-Hill hasn’t broken out profits for its tiny TV unit in recent years, but we do know that 2010 revenues were $96 million.
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