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WBIR's parent company Gannett to acquire Belo in $2.2B deal

5:26 PM, Jun 13, 2013   |    comments
Gannett's headquarters in McLean, Virginia.(Photo: Denny Gainer)
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By Roger Yu and Kim Hjelmgaard, USA TODAY

Gannett Co., the diversified media company that owns USA TODAY and TV stations, said Thursday it will buy competitor Belo Corp. for $2.2 billion in a deal that will make Gannett the fourth largest owner of major network affiliates in the U.S., reaching nearly a third of U.S. households.

Gannett will acquire all outstanding shares of Belo for $13.75 per share in cash, or about $1.5 billion, and assume $715 million in existing debt.

The transaction, which has been unanimously approved by the boards of directors of both companies, represents a 28.1% premium to the closing price of Belo common stock on Wednesday.

Shares of Gannett (GCI) jumped as high as 29% to an intraday high of $25.69 in Thursday morning trading. Belo shares (BLC) also spiked more than 27% to $13.69.

"We are thrilled to bring together two highly respected media companies with rich histories of award-winning journalism, operational excellence and strong brand leadership," said Gannett CEO Gracia Martore, in a statement. "It will significantly improve our cash flow and financial strength, enabling us to quickly pay down debt while remaining committed to disciplined capital allocation."

The deal expands Gannett's footprint nationwide, enabling the McLean, Va.-based company to sell its various marketing and advertising services to local clients - particularly small and mid-size businesses - in more markets.

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

The acquisition nearly doubles Gannett's current broadcast portfolio from 23 to 43 stations, including stations to be serviced by Gannett through shared services or similar sharing arrangements.

With 21 stations in the top 25 markets, Gannett will become the largest CBS affiliate group and expand as the largest NBC affiliate group. It'll also become the fourth largest ABC affiliate group. "We become a true super group," Martore said, in a conference call with analysts Thursday.

Gannett said it'll "restructure ownership" of Belo stations in the five markets where Gannett also owns a station. In an employee memo, Gannett said it'll provide support services to stations Louisville, Phoenix, Portland (Oreg.), St. Louis and Tucson, and added that these stations will be separately owned. Other Belo stations will be fully integrated into Gannett's broadcast division, led by Dave Lougee.

With the deal, the combined company also owns a newspaper and a TV station in the Phoenix area. The Federal Communications Commission's rules on cross-ownership prohibit a single company from owning both.

Gannett currently derives more of its revenue from the print business - 82 newspapers it owns nationwide - compared to broadcasting and digital units. But after the transaction, the broadcast segment is expected to contribute more than half of the company's total earnings before interest, taxes and other items. The digital and broadcast units combined are expected to contribute nearly two-thirds, Martore said. It's a "significant shift in our business mix," she said.

In the combined company, Belo would contribute $680 million in revenue and $230 million in earnings before interest, taxes and other items. The merger will result in about $175 million in "synergies" in the next three years, largely from eliminating duplicate functions and other cost of running two publicly traded companies and more retransmission fees from cable operators made possible by enhanced negotiating powers.

Gannett also expects "significant free cash flow" and its earnings per share to rise by 50 cents in the first 12 months after the transaction closes.

Dallas-based Belo currently owns and operates 20 TV stations - nine in the top 25 markets - and their associated websites, including in Texas and the Pacific Northwest where Gannett does not have a major presence.

Belo once owned newspapers. But seeking to shelter its broadcast properties from the fallout of declining print ad sales, Belo separated its TV business in 2008 by spinning off the newspaper unit into a publicly-traded company called A. H. Belo Corp.

In addition to USA TODAY, Gannett owns regional newspapers, such as the Detroit Free Press and The Courier-Journal in Louisville, Ky.

Shares in Gannett closed Wednesday at $19.85, up from $12.50 in July as the company has aggressively pursued efforts to diversify its business model.

Gannett earned $104.6 million, or 44 cents per share, in the January-March period. That was up from $68.2 million, or 28 cents per share, a year earlier. Revenue grew 1.6% to $1.24 billion from $1.22 billion.

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