Thursday, June 13, 2013

Bulletin: GCI buying TV owner Belo for $1.5B cash; surprise acquisition doubles broadcast presence; GCI shares rocket 28% to new post-recession high

[Updated at 2:12 p.m. ET with latest stock price, other details.]

In a stunning announcement this morning, Gannett said it's agreed to buy television company Belo Corp. for about $1.5 billion in cash, plus assumption of $715 million in debt -- a deal that nearly doubles GCI's current broadcast portfolio, stepping up the media company's push to diversify revenue streams and its geographic footprint.

The acquisition also moves Broadcast Division President Dave Lougee more firmly into the lead position to succeed CEO Gracia Martore over the next three years.

GCI will pay Belo's shareholders $13.75 a share, representing a 28% premium over yesterday's closing price for the Dallas-based company and its 20 stations. Including the assumption of debt, the deal is worth $2.2 billion, according to MarketWatch.

GCI's stock soared on the news: At mid-afternoon, it traded for $25.43 a share, up $5.58, or 28%. That is the highest shares have traded since the depths of the Great Recession in spring 2009, when GCI fell below $2.

"From a strategic standpoint, it's very good news for the company," analyst Michael Kupinski of Noble Financial told USA Today. "It makes Gannett a big player in the industry. Without acquisitions, they could have been marginalized."

The timing is crucial. GCI has been facing a deacceleration in revenue growth beginning in the third quarter. That is when the company cycles against big, one-time increases in print newspaper subscription rates a year ago. What's more, the Broadcast Division faces similarly tough comparables because of the surge in advertising revenue it got from the summer Olympics in London and the presidential election.

GCI said it expects to finance the purchase through cash on hand, accessing the capital markets and bank financing. At the end of the first quarter, however, GCI had just $143 million in cash on hand.

Risky gambit on TV's future
Combined, those forces had Wall Street analysts pressing Martore for details on other growth initiatives. She has consistently promised to consider new investments, especially beyond newspapers, the historic heart of GCI's operations. TV stations were a logical target, amid broader shifts in the media market.

But in doubling down on TV, Martore is gambling on another legacy industry that's facing some of the same challenges decimating newspapers. Viewers and advertisers are moving to mobile and online rivals, including YouTube and Netflix that are now producing original content of their own.

The Belo acquisition raises Gannett's broadcast portfolio to 43 stations from 23, including stations to be serviced through shared services or similar sharing arrangements. (List of Belo stations.)

Lougee
The deal is one of the biggest in GCI's history, rivaling the $2.6 billion cash purchase in 2000 of Central Newspapers, which included The Arizona Republic and The Indianapolis Star.

The acquisition further raises the profile of Lougee, 54, among candidates to succeed Martore, 61; she faces mandatory retirement age in 2016.

Regulatory hurdles ahead
Following the transaction, Corporate said in its statement, GCI’s Broadcast segment is expected to contribute more than half of the company's earnings before interest, taxes and amortization, and the Digital and Broadcast segments combined are expected to contribute nearly two-thirds.

The deal is expected to close by the end of the year. But it's subject to regulatory approval, including from the Federal Communications Commission. The FCC could express concern about overlapping properties in five three markets where GCI already owns media outlets: Phoenix, home to both KPNX and the Arizona Republic; Tucson, where GCI and Lee Enterprises jointly publish The Arizona Star; St. Louis, where GCI owns KSDK; Louisville, Ky., home to The Courier-Journal, and Portland, Ore., an hour north of Salem, where GCI owns the Statesman Journal.

Generally, a long-standing FCC rule bans companies from owning a TV station and a newspaper in the same market to prevent concentration of media ownership. But the agency has given companies waivers to the rule, such as in Phoenix. GCI and other companies including News Corp. continue opposing the rule.

In the Belo deal, GCI might offer to divest one or more newspapers or TV stations to win FCC approval. For example, that could put Louisville in the crosshairs at a time when investors including financier Warren Buffet are warming to newspapers.

In an FAQ to employees, however, Corporate said the Belo stations in those five markets would be "separately owned," and that GCI would provide support services to them; Corporate didn't identify the future owners of those five, however. In all of the remaining markets, the Belo stations will be fully integrated into the Broadcast division’s operations. (List of GCI's U.S. properties.)

Martore and Lougee are scheduled to brief employees during a 2 p.m. ET "town hall" meeting. A live video stream will be accessible on the GCI's intranet.

Martore hinted at TV deal
In a conference call this morning with stock analysts, Martore said she began talking with her counterpart at Belo, Dunia Shive, some time ago. The two eventually concluded that a merger to create one of the country’s biggest providers of local broadcast television made sense, and eventually began exclusive takeover negotiations, according to The New York Times.

Martore
In late April, Martore told analysts during the first-quarter conference call that Corporate was watching the market for TV stations. "We're getting lots of calls on them. In some situations vis-à-vis overlap situations or other things, they don't necessarily make sense for us to do."

She continued: "But I would say as a general comment, as you know, our broadcast business had its best year in its history last year. We believe conceptually in the fact that more scale and a bigger footprint matters in the broadcast arena. . . . We have very, very good scale now, but improving on that scale could only be a positive going forward. But as always, we would be incredibly disciplined in what we would look at and what multiple we would pay."

In today's announcement, Corporate also said the company will continue its share buyback program and has replaced its existing remaining authorization with a new $300 million authorization expected to be used over the next two years. The company will also continue its existing dividend payment plans.

Belo, originally known as a Texas newspaper company, spun off its newspaper business into a separate publicly traded company called A.H. Belo Corp., which publishes the Dallas Morning News and the Providence Journal, among other papers. Belo now owns 20 television stations and their associated websites, according to The Wall Street Journal.

The Dallas paper is also reporting the deal.

In addition to Central Newspapers, GCI's other major acquisitions have included the $1.5 billion cash deal for U.K. newspaper division Newsquest in 1999, and $1 billion for 19 Thomson dailies in Wisconsin, Ohio and Louisiana in 2000.

Related: TV networks face falling ratings and new rivals.

29 comments:

  1. Unleash the lawyers:
    http://finance.yahoo.com/news/rigrodsky-long-p-announces-investigation-134800429.html

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  2. This must have been Gannett's plan for the past two years and the main reason thousands of people have lost their job. GPS job was to get rid of print assets.

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    1. Actually, the plan at one time in the past two years was to sell the tv stations - possibly to Belo. Acquirer becomes acquiree.

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  3. So, does the deal include the Dallas Morning News? If so, that will quickly become one of Gannett's larger newspapers.

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    1. I knew someone here would ask this.

      READ! Your question was answered. Learn to read.

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  4. Belo spun newspapers off in 2008.

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  5. GCI bought BLC; AHC is the 2008 newspaper spinoff company. Will Gannett spinoff it's newspapers next?

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  6. Yawn. This is something that would have been huge news 13 years ago. Now it's 2013, and the first place I heard about this was Facebook. Gannett's recent history is one of bad acquisitions at high cost (AZ Republic/Central Newspapers, ZapMedia, Captivate, BNQT, etc.). This will give them better coverage in Texas for their high school sports media initiatives. But that's about it.

    Typical Gannett acquisitions involved buying a small group to get at a couple of papers and then ditching the rest. I don't think this is a first for Gannett, but it is something they haven't done in a while, an all-TV acquisition.

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  7. Charles Everett6/13/2013 1:40 PM

    TV Spy has obtained an internal memo for Gannett employees on what to expect.

    Most notably, Gannett plans to spin off the Belo stations in five cities and then provide support services for them. Those stations are KTVK/KASW Phoenix (due to KPNX), KMOV St. Louis (due to KSDK), KGW Portland OR (due to the Salem daily), WHAS11 Louisville (due to the Louisville daily), KMSB/KTTU Tucson (due to the Tucson Citizen JOA).

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    1. Another "who cares" scoop from Chareles.

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    2. LOL. That information was in the press release!

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    3. Thank you, Mr. Everett.

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  8. What's a better way to park your dog assets than a spin-off.

    Wrap them up and pawn them to Buffett. The post print autopsy will show the fatal mistake was allowing print people to figure out how to monetize their digital content. Print is over, especially in the rust belt, second tier properties GCI owns. These ruddy print guys will go to their graves with ink on their sleeves, all the while looking up from their desks and saying, "Run that baby."

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  9. This is a bad deal in the long run. It'll pay off handsomely for a while, especially in ad-rich election years. But ultimately local TV stations will go the way of print newspapers as entertainment providers bypass traditional delivery avenues in favor of more direct connections with audiences via subscription and pay-per-view arrangements. Gannett is stepping from one dying medium into another.

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  10. Wonder what Belo CEO does - SHE moved up the ladder in Belo's Finance organization. Just like a certain CEO we know and love at Gannett. Is Victoria nervous now?

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  11. Shorts have 3 days to cover as GCI stock now up almost $7/share. The squeeze next week could ramp this up to $30/share. As much as I dislike the local dictators and what they're done to devalue the smaller papers, Gracia's done a tremendous job bringing the company out of the depths from whats-his-face with the bad back.

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  12. Belo, employee's are screwed!!!! Gannett will slice and dice as all companies they have bought.

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    1. Belo employees have been screwed for years! AH Belo has strictly a finance focus and they slice and dice right up there with Gannett (ignoring employees and the communities they are supposed to serve). Belo has ruined every newspaper they have managed to buy. They may bide their time but if you do not drink their brand of Kool-Aid you are gone even if they have to make up a reason.

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    2. 4:45 is correct. Belo is awful to its newspaper and television employees. Belo TV people will continue to be shellshocked by the Big G.

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    3. Charles Everett6/13/2013 9:15 PM

      Belo Corp. and A.H. Belo are two separate enterprises. Gannett is buying the TV company, NOT the newspaper company.

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  13. The rise in the stock price today -- approaching $7 as I type 10 minutes out from market close -- is nothing short of spectacular. Clearly, Wall Street and the investing community love this deal. It is unusual for the stock price of the acquiring company to go up in these deals. Often, the company being bought goes up in keeping with the buyout price but the stock of the company doing the buying goes down. Like I said, the street loves this deal. So do I. I am up more than $30,000 on 5,300 shares of GCI today alone. I own then at an average of $4.05, so my overall gain is quite wonderful. I am a former (laid-off) GCI employee who didn't let his dislike of the company get in the way of recognizing a gift from heaven when GCI went to just a few bucks in the Great Recession. I knew a good deal when I saw it. Because if the folks who run GCI care about anything, it's pleasing Wall Street. And I knew they'd find a way to bring the stock back. You can let it ruin your day all day long or you can profit from it. Glad I took the second option but would never work for them again.

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    1. My sentiments exactly, although I don't have quite that much in my company 401K, all of which is "matching" (free). I didn't let myu disgust with the company color my view of the stock, for the very reason you cited: Job #1 for them is to kiss The Street's hiney.

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    2. You'd have done better in Vegas and enjoyed it more, but hey, to each her own.

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    3. 3:57, Congrats and I hope your investments are highly diversified. Far beyond Gannett.

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  14. Interesting since at a 3-day conference in Appleton, the management folks there were shown a power-point presentation which said local television was doomed. Now Gannett goes out and buys more TV stations. Odd. Very odd.

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  15. Deal is all hype to prop up stock so Martore has more money to retire in a few years.

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    1. What a silly, ignorant post. What is wrong with you. This was a great day for Gannett.

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