Gannett is paying $1.5 billion for Belo Corp., doubling its TV operations, and trying to move into the more lucrative world of broadcast as papers continue to lose money.
The New York Times writes that it’s the biggest sale of local TV stations in a decade:
The takeover is a move by Gannett to diversify its media operations at a time when traditional print media continues to struggle. The company said the transaction would increase its television portfolio to 43 stations from 23, while its revenue from digital and broadcasting operations would make up two-thirds of its pro forma earnings before interest, taxes, depreciation and amortization.
The deal is the biggest local television station sale in about a decade and comes amid of a wave of consolidation in the industry. One of Gannett’s rivals, the Sinclair Broadcast Group, is currently acquiring two smaller station owners.
And they offer this rational for the purchase:
Being bigger is also better when the stations turn around and negotiate with the networks that provide them programming. Networks like CBS have been aggressive about receiving a slice of stations’ retransmission fees, something known in the industry as reverse compensation.
Having a presence in more markets across the country — Gannett will have 21 stations in the nation’s top 25 markets when the Belo deal closes — can also help on the advertising front. Local stations in states with competitive elections have looked particularly valuable to investors as a result of the surge in political advertising every two years.
The Wall Street Journal points out that Gannett is on more solid financial footing than in the past:
Gannett—the largest U.S. newspaper publisher by circulation, including its flagship USA Today—has been aiming to build up its digital operations, partly through bolt-on acquisitions, as readers increasingly turn to the Internet and mobile devices for news. The company’s circulation revenue also has been getting a boost from the rollout of the digital subscription program.
In April, Gannett reported that its first-quarter earnings rose 53% as the media company reported a boost from its digital-subscription program, revenue growth in its broadcast business and a tax benefit. The company also reported its broadcast revenue increased 8.7% to $191.6 million, driven in large part by a 59% increase in retransmission revenue.
Bloomberg Businessweek goes even further to highlight the appeal of TV stations versus the dying dinosaur of newspapers:
Newspapers, like 1960s sports cars, are expensive toys these days: costly and usually more trouble than they’re worth. That’s the sentiment behind Gannett’s (GCI) move this morning to buy Belo (BLC) for $2.2 billion in cash and assumed debt. If shareholders and antitrust regulators sign off on the deal, the owner of USA Today and 81 other newspapers will be transformed into a company that earns more than half of its operating profit from TV broadcasts.
Apparently, investors were thrilled with the decision, sending the stock to record highs according to the Bloomberg story:
Gannett Co., the publisher of USA Today, surged the most in almost four years after agreeing to buy Belo Corp. (BLC) for about $1.5 billion, gaining TV stations to reduce its dependence on its shrinking newspaper business.
Gannett leaped as high as 29 percent to $25.69, the most since July 2009. It traded at $25.10 at 9:46 a.m. in New York. The McLean, Virginia-based publisher will pay $13.75 per Belo share in cash and assume $715 million in debt, according to a statement today. The per-share price is 28 percent above Belo’s closing price yesterday.
In addition to Houston, the deal gives Gannett stations in other major markets in Texas as well as in Arizona and in parts of the South and Northwest. The stations, and the broadcast networks they’re affiliated with, are beginning to extract fees from cable and satellite operators such as Comcast Corp. and DirecTV in exchange for distributing local-TV programming.
The pace of mergers has accelerated in the broadcast-TV industry: Last week, Media General Inc. agreed to buy New Young Broadcasting Holding Co., while Sinclair Broadcast Group Inc. has spent more than $1.84 billion on broadcasters in the past two years.
“Consolidation continues in the industry,” Tracy Young, a media analyst at Evercore Partners, said in an interview. “At the end of the day there’ll be a handful of players.”
The transaction also underscores Gannett’s exposure to the weakening newspaper industry. The company’s publishing business declined 23 percent in operating income last year from 2011. Gannett’s broadcast division, meanwhile, gained 47 percent in the same period.
What these stories aren’t pointing out is how consolidation generally leads to fewer jobs, which is terrible news for those continuing to eek out a living in the shrinking media sector. While it might be good for investors, it does shake confidence in companies that continue to get the majority of their income from newspapers.
It also is a counter to the argument for splitting newspaper and television properties as News Corp is doing. It may also be hard to attract investors to the more traditional media companies.
