What the FOX: Nexstar’s Big Deleverage Deal


Updated at 9:30am Eastern

Nexstar Media Group on Wednesday released its Q3 earnings results.

A day before, it made a deal designed to provide richer revenue in perhaps Q3 2020 and beyond.

The nation’s No. 1 owner of broadcast TV stations late Tuesday confirmed that it is conducting a buy-and-sell deal with FOX involving the Charlotte, Seattle and Milwaukee markets.

In a transaction that has yet to appear in the FCC database, Nexstar will purchase from Fox Corporation its FOX-affiliated WJZY-46 in Belmont, N.C., and MyNetwork TV affiliate WMYT-55 in Rock Hill, S.C., for “approximately $45 million in cash.” The stations serve the Charlotte DMA and were purchased in January 2013 from Capitol Broadcasting Corp. for $18 million.

That purchase shifted FOX network programming to WJZY from WCCB-18, now an affiliate of The CW Network.

At the same time, Nexstar has agreed to sell to FOX a trio of TV stations many believed it would be buying … eventually.

For the hefty sum of $350 million, FOX is getting KCPQ-13 in Seattle-Tacoma, the FOX affiliate, and MyNetworkTV Affiliate KZJO “JOEtv” and the Milwaukee FOX affiliate, WITI.

KZJO is the former KTZZ and KTWB and was briefly owned in the late 1990s by Emmis Communications, which spun it to Tribune Media. As KZJO, it was in a duopoly under Tribune with KCPQ that garnered much attention in 2017 and 2018, when Sinclair Broadcast Group planned to merger with Tribune.

Analysts opined that the sale of the Seattle duo to FOX was likely. But, a series of events saw the station eventually retained by Tribune, and handed to Nexstar as part of the company’s merger with that company made possible by the summer 2018 decision by the FCC to place the then-proposed Sinclair-Tribune combination in front of an Administrative Law Judge.

WITI, meanwhile, was a Tribune station acquired in 2013 from Oak Hill Capital Partners’ Local TV LLC as part of a $2.75 billion transaction.

Why did Nexstar make the deals? Leverage reduction is the No. 1 reason.

“Nexstar intends to use the net cash proceeds from the transactions to reduce borrowings under its credit facilities,” the company said in a release.

Commenting on the agreements, Nexstar Media Group Chairman and President/CEO Perry Sook said, “Throughout Nexstar Media Group’s 23-year history, we have actively managed our station portfolio with the goal of serving the local communities where we operate, diversifying our operations, managing risk and improving financial results. The planned transactions with FOX address all of these strategic objectives and the net financial result is embedded in our pro-forma average annual free cash flow guidance for the 2019/2020 cycle of approximately $1.02 billion. These transactions also highlight our near-term focus on reducing leverage as our net leverage ratio will decline by approximately 0.1 times from the 4.6 times level, at June 30, 2019, announced when we closed the Tribune transaction in September.”

Sook added that fast-growing Charlotte excites the company, and that WJZY and WMYT “represent excellent complements to our already strong mid-Atlantic presence and will benefit from our local news and other programming resources.”

One industry observer who spoke with RBR+TVBR late Tuesday questioned why the two Charlotte stations were valued at prices that, while much higher than what FOX paid for them, are much lower than what the Milwaukee and Seattle duo fetched. NFL football coverage for the Seattle Seahawks and Green Bay Packers, respectively, was one reason the observer offered, questioning the Carolina Panthers’ comparable ratings and revenue. Then, there is the historical nature of the Charlotte TV market, where Cox Media Group‘s ABC affiliated WSOC-9 and TEGNA‘s NBC affiliated WCNC-36 have long dominated the market, as has Gray Television‘s CBS affiliate, WBTV-3.

Meanwhile, Sook hints that the deals free up approximately 0.7% household reach, reflecting the FCC’s UHF discount — which could go away or be expanded, pending what the Commission does now that its cross-ownership rule rewrite was remanded by the Third Circuit Court of Appeals.

He says the transactions allow Nexstar “to pursue other opportunistic transactions that strengthen our local market platform and service to viewers and businesses. From a financial perspective this transaction represents another unique and innovative means for Nexstar to enhance shareholder value.”

The transaction is expected to close in the first half of 2020.